<PAGE> 1
HIGH INCOME ADVANTAGE TRUST II Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS July 31, 1996
DEAR SHAREHOLDER:
The fixed-income markets rebounded sharply during the second half of 1995, as
economic growth slowed and inflation fears subsided. This trend continued into
the new year before reversing itself, as signs of an economic recovery caused
the U.S. Treasury market to retreat. The high-yield market, which performed
nicely during 1995, held up relatively well during the first half of 1996, even
as prevailing interest rates moved up sharply. While signs of an economic
recovery has led to a sharp increase in interest rates, this recovery also bodes
well for the future prospects of many corporate issuers in the high-yield
marketplace and helps erase some of the recession fears that had plagued the
high-yield market in late 1995. Overall, the high-yield market is off to a
relatively good start thus far in 1996, following up on the strong year the
market had in 1995.
PERFORMANCE
Against this backdrop, High Income Advantage Trust II produced a total return of
11.31 percent for the twelve-month period ended July 31, 1996, 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 $5.97 per share, the Trust's total return
for the same period was 9.29 percent. As of July 31, 1996, the Trust had net
assets in excess of $212 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 twelve-month period, income dividends totaled
approximately $0.67 per share, including an extra income dividend of $0.0365 per
share paid on December 22, 1995.
INVESTMENT STRATEGY
The Trust's investment strategy remained essentially unchanged over the past
year, with a continued emphasis on discounted B-rated issues, given their
attractive long-term total return potential. In today's market, many of these
issues can be purchased below par providing significant future
<PAGE> 2
HIGH INCOME ADVANTAGE TRUST II
LETTER TO THE SHAREHOLDERS July 31, 1996, continued
appreciation potential and an attractive yield spread over comparable Treasuries
(in the 11 percent to 12 percent range). In light of the rebounding economy, we
feel quite comfortable with the earnings outlook for most of our B-rated
issuers. Recognizing that the economy may slow somewhat in 1996's second half
however, we have tried to limit the portfolio's volatility by focusing primarily
on growth type, recession resistant industry sectors such as cable, media, food
and beverage and telecommunications.
MARKET OUTLOOK
Given our outlook for continued, albeit moderate economic growth, we find that
many of today's B-rated issues offer excellent long-term return potential. Over
the near term, there could be continued volatility in the financial markets as
investors assess the economy's strength, possible Federal Reserve Board actions
and the upcoming Presidential election. However, despite any potential
short-term weakness, we consider today's high-yield market to be an attractive
long-term opportunity for investors.
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 appreciate your support of High Income Advantage Trust II and look forward to
continuing to serve your investment needs and objectives.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 3
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS July 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (88.9%)
Aerospace (2.6%)
$ 6,650 Sabreliner Corp. (Series B).......... 12.50 % 04/15/03 $ 5,552,750
------------
Automotive (3.3%)
1,000 APS, Inc. - 144A*.................... 11.875 01/15/06 1,045,000
7,900 Envirotest Systems, Inc. ............ 9.625 04/01/03 6,004,000
------------
7,049,000
------------
Broadcast Media (2.9%)
2,000 Adams Outdoor Advertising - 144A*.... 10.75 03/15/06 2,060,000
2,000 Paxson Communications Corp. ......... 11.625 10/01/02 2,090,000
2,000 Spanish Broadcasting System, Inc. ... 7.50 06/15/02 2,020,000
------------
6,170,000
------------
Business Services (3.7%)
1,932 Anacomp, Inc. ....................... 13.00+ 06/04/02 1,893,360
5,500 Xerox Corp. ......................... 15.00 06/10/97 5,900,180
------------
7,793,540
------------
Cable & Telecommunications (12.9%)
4,245 Adelphia Communications Corp. (Series
B)................................... 9.50+ 02/15/04 3,502,134
6,500 American Communications
Services, Inc. ...................... 12.75++ 04/01/06 3,331,250
5,500 AT&T Capital Corp. .................. 15.00 05/05/97 5,852,165
2,000 Charter Communication South East
L.P. - 144A*......................... 11.25 03/15/06 1,980,000
2,000 Falcon Holdings Group L.P.
(Series B) .......................... 11.00+ 09/15/03 1,880,000
18,350 In-Flight Phone Corp. (Series B)..... 14.00++ 05/15/02 6,881,250
2,000 Peoples Telephone Co., Inc. ......... 12.25 07/15/02 1,950,000
2,000 Rifkin Acquisition Partners L.P. .... 11.125 01/15/06 2,000,000
------------
27,376,799
------------
Computer Equipment (3.0%)
2,000 Unisys Corp. ........................ 15.00 07/01/97 2,110,000
4,000 Unisys Corp. (Conv.)................. 8.25 03/15/06 4,305,000
------------
6,415,000
------------
Consumer Products (1.2%)
2,500 J.B. Williams Holdings, Inc. ........ 12.00 03/01/04 2,518,750
------------
Containers (2.1%)
4,000 Ivex Holdings Corp. (Series B)....... 13.25++ 03/15/05 2,520,000
2,000 Mail-Well Corp. ..................... 10.50 02/15/04 1,930,000
------------
4,450,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS July 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Electrical & Alarm Systems (2.6%)
$ 6,500 Mosler, Inc. ........................ 11.00 % 04/15/03 $ 5,484,375
------------
Entertainment/Gaming & Lodging (9.0%)
2,000 AMF Group Inc. - 144A*............... 10.875 03/15/06 1,995,000
3,000 Fitzgeralds Gaming Corp. (Units)+++.. 13.00 12/31/02 2,265,000
2,000 Lady Luck Gaming Finance Corp. ...... 11.875 03/01/01 1,995,000
4,800 Motels of America, Inc. (Series B)... 12.00 04/15/04 4,608,000
2,000 Players International, Inc. ......... 10.875 04/15/05 2,020,000
2,000 Plitt Theaters, Inc. (Canada)........ 10.875 06/15/04 2,035,000
19,229 Spectravision, Inc. (a).............. 11.65 12/01/02 2,220,853
2,000 Station Casinos, Inc. ............... 9.625 06/01/03 1,907,500
------------
19,046,353
------------
Foods & Beverages (10.6%)
11,394 Envirodyne Industries, Inc. ......... 10.25 12/01/01 9,912,780
5,000 Seven Up/RC Bottling Co. Southern
California, Inc. (b)................. 11.50 08/01/99 3,356,250
21,000 Specialty Foods Acquisition Corp.
(Series B)........................... 13.00++ 08/15/05 9,240,000
------------
22,509,030
------------
Healthcare (0.9%)
2,000 Unilab Corp. ........................ 11.00 04/01/06 1,850,000
------------
Manufacturing (6.1%)
3,500 Alpine Group, Inc.................... 12.25 07/15/03 3,552,500
2,000 Berry Plastics Corp. ................ 12.25 04/15/04 2,120,000
1,000 Cabot Safety Corp. .................. 12.50 07/15/05 1,102,500
1,750 Exide Electronics Group, Inc.
(Series B)........................... 11.50 03/15/06 1,776,250
2,000 International Wire Group, Inc. ...... 11.75 06/01/05 2,000,000
2,500 Uniroyal Technology Corp. ........... 11.75 06/01/03 2,375,000
------------
12,926,250
------------
Manufacturing - Diversified (6.1%)
2,000 Foamex L.P. ......................... 11.875 10/01/04 2,065,000
2,000 Interlake Corp. ..................... 12.125 03/01/02 2,010,000
2,500 J.B. Poindexter & Co., Inc. ......... 12.50 05/15/04 2,250,000
4,650 Jordan Industries, Inc. ............. 10.375 08/01/03 4,440,750
3,200 Jordan Industries, Inc. ............. 11.75++ 08/01/05 2,304,025
2,500 Starcraft Industrial Corp. (a)....... 16.50 01/15/98 --
------------
13,069,775
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS July 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Oil & Gas (1.0%)
$ 2,500 Empire Gas Corp. .................... 7.00 % 07/15/04 $ 2,187,500
------------
Publishing (4.5%)
4,000 Affiliated Newspapers
Investments, Inc. ................... 13.25++ 07/01/06 2,900,000
2,000 American Media Operations, Inc. ..... 11.625 11/15/04 2,060,000
5,000 United States Banknote Corp. ........ 10.375 06/01/02 4,687,500
------------
9,647,500
------------
Restaurants (8.1%)
12,500 American Restaurant Group
Holdings, Inc. ...................... 14.00++ 12/15/05 4,625,000
2,000 Boston Chicken Inc. (Conv.).......... 4.50 02/01/04 2,075,000
2,000 Carrols Corp. ....................... 11.50 08/15/03 2,050,000
13,000 Flagstar Corp. ...................... 11.25 11/01/04 8,580,000
------------
17,330,000
------------
Retail (2.5%)
2,030 Cort Furniture Rental Corp. ......... 12.00 09/01/00 2,131,500
4,000 County Seat Stores Co. .............. 12.00 10/01/02 3,240,000
------------
5,371,500
------------
Retail - Food Chains (2.7%)
2,000 Jitney-Jungle Stores................. 12.00 03/01/06 2,070,000
2,000 Pathmark Stores, Inc. ............... 9.625 05/01/03 1,885,000
2,000 Ralphs Grocery Co. .................. 11.00 06/15/05 1,905,000
------------
5,860,000
------------
Textiles - Apparel Manufacturers
(3.1%)
7,813 JPS Textile Group, Inc. ............. 10.85 06/01/99 4,961,255
2,000 U.S. Leather, Inc. .................. 10.25 07/31/03 1,660,000
------------
6,621,255
------------
TOTAL CORPORATE BONDS
(Identified Cost $213,606,920)................................. 189,229,377
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (c) (4.3%)
Automotive (0.0%)
91 Northern Holdings Industrial Corp. (Restricted) (d)............ --
------------
Computer Equipment (0.2%)
222,958 Memorex Telex NV (ADR) (Netherlands) (d)....................... 278,697
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS July 31, 1996, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C>
Entertainment/Gaming & Lodging (0.2%)
5,000 Motels of America, Inc. - 144A*................................ $ 350,000
------------
Foods & Beverages (0.1%)
225,000 Specialty Foods Acquisition Corp. (Restricted) - 144A*......... 281,250
------------
Manufacturing - Diversified (3.2%)
315,250 Thermadyne Holdings Corp. (d).................................. 6,896,094
------------
Publishing (0.1%)
9,000 Affiliated Newspapers Investments, Inc. (Class B).............. 270,000
------------
Restaurants (0.1%)
12,500 American Restaurant Group Holdings, Inc. - 144A*............... 125,000
------------
Retail (0.4%)
26,895 CORT Business Services Corp. .................................. 511,005
28,500 Thrifty Payless Holdings, Inc. (Class B)....................... 399,000
------------
910,005
------------
TOTAL COMMON STOCKS
(Identified Cost $17,847,175).................................. 9,111,046
------------
PREFERRED STOCK (0.8%)
Entertainment/Gaming & Lodging
80,000 Fitzgeralds Gaming Corp. (Units)+++
(Identified Cost $2,000,000)................................... 1,680,000
------------
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WARRANTS (c) (0.2%)
Aerospace (0.0%)
6,000 Sabreliner Corp. (Restricted) - 144A*........... 04/15/03 60,000
------------
Cable & Telecommunications (0.1%)
12,900 In-Flight Phone Corp. - 144A*................... 08/31/02 129,000
------------
Containers (0.0%)
5,000 Crown Packaging Holdings, Ltd.
(Canada) - 144A*................................ 11/01/03 50
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS July 31, 1996, continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Entertainment/Gaming & Lodging (0.0%)
3,263 Casino America, Inc. ........................... 11/15/96 $ --
3,000 Fitzgeralds Gaming Corp. ....................... 12/19/98 13,536
2,900 Fitzgeralds Gaming Corp. - 144A*................ 03/15/99 --
------------
13,536
------------
Manufacturing (0.1%)
1,750 Exide Electronics Group, Inc. - 144A*........... 03/15/06 35,000
25,000 Uniroyal Technology Corp. ...................... 06/01/03 34,375
------------
69,375
------------
Oil & Gas (0.0%)
6,900 Empire Gas Corp. ............................... 07/15/04 69,000
------------
Retail (0.0%)
5,000 County Seat Holdings Co. ....................... 10/15/98 50,000
------------
Retail - Food Chains (0.0%)
19,512 Grand Union Co. (Series 1) (d).................. 06/15/00 6,107
39,026 Grand Union Co. (Series 2) (d).................. 06/15/00 624
------------
6,731
------------
TOTAL WARRANTS
(Identified Cost $1,379,167)................................... 397,692
------------
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (e) (3.8%)
COMMERCIAL PAPER
Automotive - Finance
$8,000 Ford Motor Credit Co. (Amortized Cost
$7,992,867).......................... 5.35 % 08/07/96 7,992,867
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS July 31, 1996, continued
<TABLE>
<CAPTION>
VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $242,826,129) (f)...................... 98.0% $208,410,982
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......... 2.0 4,347,880
----- ----------
NET ASSETS............................................. 100.0% $212,758,862
===== ============
</TABLE>
- ---------------------
<TABLE>
<S> <C>
ADR American Depository Receipt.
* Resale is restricted to qualified institutional investors.
+++ Consists 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 date.
(a) Non-income producing security, issuer in bankruptcy.
(b) Non-income producing security, issuer in default.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) Security was purchased on a discount basis. The interest rate shown has been
adjusted to reflect a money market equivalent yield.
(f) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $7,466,048 and the
aggregate gross unrealized depreciation was $41,881,195, resulting in net
unrealized depreciation of $34,415,147.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1996
ASSETS:
Investments in securities, at value
(identified cost $242,826,129)......... $ 208,410,982
Cash.................................... 47,362
Interest receivable..................... 4,592,044
Prepaid expenses and other assets....... 5,959
-------------
TOTAL ASSETS........................ 213,056,347
-------------
LIABILITIES:
Investment management fee payable....... 144,091
Accrued expenses and other payables..... 153,394
-------------
TOTAL LIABILITIES................... 297,485
-------------
NET ASSETS:
Paid-in-capital......................... 344,428,742
Net unrealized depreciation............. (34,415,147)
Accumulated undistributed net investment
income................................. 5,071,593
Accumulated net realized loss........... (102,326,326)
-------------
NET ASSETS.......................... $ 212,758,862
=============
NET ASSET VALUE PER SHARE,
35,611,307 shares outstanding
(unlimited shares authorized of $.01
par value)............................. $5.97
====
STATEMENT OF OPERATIONS
For the year ended July 31, 1996
NET INVESTMENT INCOME:
INTEREST INCOME......................... $ 27,659,513
-------------
EXPENSES
Investment management fee............... 1,600,337
Transfer agent fees and expenses........ 110,590
Registration fees....................... 62,722
Shareholder reports and notices......... 49,612
Custodian fees.......................... 45,779
Professional fees....................... 42,377
Trustees' fees and expenses............. 16,119
Other................................... 8,132
-------------
TOTAL EXPENSES...................... 1,935,668
-------------
NET INVESTMENT INCOME............... 25,723,845
-------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss....................... (6,348,564)
Net change in unrealized depreciation... 513,141
-------------
NET LOSS............................ (5,835,423)
-------------
NET INCREASE............................ $ 19,888,422
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, JULY 31,
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 25,723,845 $ 24,934,195
Net realized loss...................................... (6,348,564) (20,031,015)
Net change in unrealized depreciation.................. 513,141 12,554,315
------------ ------------
NET INCREASE....................................... 19,888,422 17,457,495
Dividends from net investment income................... (23,734,936) (25,533,307)
------------ ------------
TOTAL DECREASE..................................... (3,846,514) (8,075,812)
NET ASSETS:
Beginning of period.................................... 216,605,376 224,681,188
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$5,071,593 and $3,082,684, respectively)........... $212,758,862 $216,605,376
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS July 31, 1996
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'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 seeks to achieve its
objective by investing primarily in lower-rated fixed income securities. The
Trust was organized as a Massachusetts business trust on July 7, 1988 and
commenced operations on September 30, 1988.
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 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 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 are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
<PAGE> 12
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS July 31, 1996, continued
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 Dean Witter InterCapital
Inc. (the "Investment Manager"), the Trust pays the Investment Manager a
management fee, calculated weekly and payable monthly, by applying the following
annual rates to the Trust's weekly net assets: 0.75% to the portion of weekly
net assets not exceeding $250 million; 0.60% to the portion of weekly net assets
exceeding $250 million but not exceeding $500 million; 0.50% to the portion of
weekly net assets exceeding $500 million but not exceeding $750 million; 0.40%
to the portion of weekly net assets exceeding $750 million but not exceeding $1
billion; and 0.30% to the portion of weekly net assets exceeding $1 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
<PAGE> 13
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS July 31, 1996, continued
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended July 31, 1996, aggregated
$180,561,203 and $189,075,089, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At July 31, 1996, the Trust had transfer agent fees and
expenses payable of approximately $17,000.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended July 31, 1996 included in
Trustees' fees and expenses in the Statement of Operations amounted to $1,466.
At July 31, 1996, the Trust had an accrued pension liability of $49,578 which is
included in accrued expenses in the Statement of Assets and Liabilities.
4. SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, July 31, 1995 and 1996................................................. 35,611,307 $356,113 $344,072,629
========== ======== ============
</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>
July 30, 1996 $0.0525 August 9, 1996 August 23, 1996
August 27, 1996 $0.0525 September 6, 1996 September 20, 1996
</TABLE>
6. FEDERAL INCOME TAX STATUS
At July 31, 1996, the Trust had an approximate net capital loss carryover which
may be used to offset future capital gains to the extent provided by regulations
as follows:
<TABLE>
<CAPTION>
AVAILABLE THROUGH JULY 31
(AMOUNTS IN THOUSANDS)
- ----------------------------------------------------------------------------
1998 1999 2000 2002 2003 2004 TOTAL
- ---- ------- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 28 $20,947 $29,353 $8,200 $23,309 $19,971 $101,808
==== ======= ======= ====== ======= ======= ========
</TABLE>
At July 31, 1996, the Trust had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
<PAGE> 14
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
------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................... $ 6.08 $ 6.31 $ 6.60 $ 6.43 $ 5.68
------ ------ ------ ------ ------
Net investment income.......................................... 0.73 0.70 0.69 0.77 0.91
Net realized and unrealized gain (loss)........................ (0.17) (0.21) (0.28) 0.31 0.50
------ ------ ------ ------ ------
Total from investment operations............................... 0.56 0.49 0.41 1.08 1.41
------ ------ ------ ------ ------
Less dividends from net investment income...................... (0.67) (0.72) (0.70) (0.91) (0.66)
------ ------ ------ ------ ------
Net asset value, end of period................................. $ 5.97 $ 6.08 $ 6.31 $ 6.60 $ 6.43
====== ====== ====== ====== ======
Market value, end of period.................................... $6.125 $6.125 $ 6.25 $6.875 $ 6.50
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+....................................... 11.31% 10.29% 0.90% 22.16% 42.17%
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................................... 0.91% 0.93% 0.94% 0.95% 0.98%
Net investment income.......................................... 12.06% 11.81% 10.33% 12.17% 14.83%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........................ $212,759 $216,605 $224,681 $235,039 $228,283
Portfolio turnover rate........................................ 89% 70% 113% 138% 99%
</TABLE>
- ---------------------
+ 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 brokerage commissions.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
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 statement 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, 1996, 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, 1996 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
September 13, 1996
<PAGE> 16
TRUSTEES
- -----------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- -----------------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
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
HIGH
INCOME
ADVANTAGE
TRUST II
Annual Report
July 31, 1996
