<PAGE> 1
HIGH INCOME ADVANTAGE TRUST II Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS January 31, 1996
DEAR SHAREHOLDER:
The fixed-income markets continued to rebound during
the second half of 1995, as economic growth slowed and
inflation fears subsided. The high-yield market, which
benefited from the U.S. Treasury market rally and lower
interest rates during the first half of 1995, calmed
down somewhat during the second half of the year.
However, as is typical in a decelerating economic
environment, high-yield bonds lagged the U.S. Treasury
rally, as concerns over the severity of the economic
slowdown offset some of the benefit of lower interest
rates.
For the six-month period ended January 31, 1996, High
Income Advantage Trust II produced a total return of 8
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 $5.97 per share on January
31, 1996, the Trust's total return for the six-month
period was 3.92 percent. As of January 31, 1996, the
Trust had net assets in excess of $212 million. Over
the past six months, the Trust continued to distribute
regular income dividends at a rate of $.0525 per share
per month. For the full six-month period, income
dividends totaled approximately $.35 per share,
including an extra income dividend of $.0365 per share
paid on December 22, 1995.
INVESTMENT STRATEGY
The Trust's investment strategy throughout 1995 was to
capitalize on the opportunity created by the 1994
market correction by positioning the Trust 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 issued
300-400 basis points higher (to 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 increased its emphasis on
discounted issues during the second half of 1994, which
helped to provide more capital appreciation potential
for the Trust. 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.
<PAGE> 2
HIGH INCOME ADVANTAGE TRUST II
LETTER TO THE SHAREHOLDERS January 31, 1996, continued
MARKET OUTLOOK
Given our outlook for continued, albeit slower economic growth, we find that
many of today's B rated issues -- still 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, possible Federal Reserve Board actions and ongoing budget
negotiations in Washington. 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 opportunity
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 purchase 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.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
HIGH INCOME ADVANTAGE TRUST II
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 20, 1995, an annual meeting of the Trust's shareholders was held for
the purpose of voting on three separate issues, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Edwin J. Garn
For..................................................................................................... 27,087,504
Against................................................................................................. 344,912
John R. Haire
For..................................................................................................... 27,055,222
Against................................................................................................. 377,194
Michael E. Nugent
For..................................................................................................... 27,089,697
Against................................................................................................. 342,719
Philip J. Purcell
For..................................................................................................... 27,088,653
Against................................................................................................. 343,763
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Jack F. Bennett+, Michael Bozic, Charles A. Fiumefreddo, Dr. Manuel H.
Johnson,
Paul Kolton and John L. Schroeder
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT:
<TABLE>
<S> <C>
For..................................................................................................... 26,561,738
Against................................................................................................. 315,542
Abstain................................................................................................. 555,136
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For..................................................................................................... 26,960,843
Against................................................................................................. 112,076
Abstain................................................................................................. 359,497
</TABLE>
- ---------------------
+ Retired effective February 1, 1996.
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (90.3%)
Aerospace (2.8%)
$ 6,250 Sabreliner Corp. (Series B).......... 12.50 % 04/15/03 $ 5,921,875
----------
Airlines (4.5%)
10,000 GPA Delaware, Inc. .................. 8.75 12/15/98 9,525,000
----------
Automotive (3.4%)
1,000 APS, Inc. - 144A*.................... 11.875 01/15/06 1,036,250
7,900 Envirotest Systems, Inc. ............ 9.625 04/01/03 6,241,000
----------
7,277,250
----------
Cable & Telecommunications (8.4%)
4,053 Adelphia Communications Corp. (Series
B).................................. 9.50+ 02/15/04 3,343,944
5,500 AT&T Capital Corp. .................. 15.00 05/05/97 6,133,600
13,850 In-Flight Phone Corp. (Series B)..... 14.00++ 05/15/02 4,293,500
2,000 Paxson Communications - 144A*........ 11.625 10/01/02 2,100,000
2,000 Rifkin Acquisition Partners
L.P. - 144A*........................ 11.125 01/15/06 2,035,000
----------
17,906,044
----------
Computer Equipment (8.2%)
8,000 IBM Credit Corp. .................... 15.00 06/13/96 8,263,680
8,850 Unisys Corp. ........................ 13.50 07/01/97 9,115,500
----------
17,379,180
----------
Consumer Products (1.2%)
2,500 J.B. Williams Holdings, Inc. ........ 12.00 03/01/04 2,518,750
----------
Containers (2.0%)
7,000 Ivex Holdings Corp. (Series B)....... 13.25++ 03/15/05 4,270,000
----------
Electrical & Alarm Systems (2.2%)
6,000 Mosler, Inc. ........................ 11.00 04/15/03 4,740,000
----------
Entertainment/Gaming & Lodging (6.4%)
3,000 Fitzgeralds Gaming Corp. (Units)+++.. 13.00 12/31/02 2,820,000
4,800 Motels of America, Inc. (Series B)... 12.00 04/15/04 4,776,000
1,750 Plitt Theaters, Inc. ................ 10.875 06/15/04 1,627,500
19,229 Spectravision, Inc. (c).............. 11.65 12/01/02 1,884,346
2,500 Trump Taj Mahal (Series A)........... 11.35+ 11/15/99 2,487,500
----------
13,595,346
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Foods & Beverages (14.7%)
$11,394 Envirodyne Industries, Inc. ......... 10.25 % 12/01/01 $ 8,944,290
8,000 PepsiCo Inc. ........................ 15.00 06/14/96 8,270,160
2,000 SC International Services, Inc. ..... 13.00 10/01/05 2,145,000
5,000 Seven Up/RC Bottling Co. Southern
California, Inc. (d)................ 11.50 08/01/99 3,106,250
18,000 Specialty Foods Acquisition Corp.
(Series B).......................... 13.00++ 08/15/05 8,820,000
----------
31,285,700
----------
Manufacturing (6.2%)
4,500 Alpine Group, Inc. .................. 12.25 07/15/03 4,410,000
2,000 Berry Plastics Corp. ................ 12.25 04/15/04 2,170,000
2,000 Cabot Safety Corp. .................. 12.50 07/15/05 2,170,000
2,000 International Wire Group............. 11.75 06/01/05 1,955,000
2,500 Uniroyal Technology Corp. ........... 11.75 06/01/03 2,400,000
----------
13,105,000
----------
Manufacturing - Diversified (8.0%)
4,500 Foamex L.P. ......................... 11.875 10/01/04 4,342,500
4,500 Interlake Corp. ..................... 12.125 03/01/02 4,320,000
2,500 J.B. Poindexter & Co., Inc. ......... 12.50 05/15/04 2,125,000
2,500 Jordan Industries, Inc. ............. 10.375 08/01/03 2,259,375
6,200 Jordan Industries, Inc. ............. 11.75++ 08/01/05 3,937,025
2,500 Starcraft Industrial Corp. (c)....... 16.50 01/15/98 --
----------
16,983,900
----------
Oil & Gas (3.2%)
2,500 Deeptech International, Inc. ........ 12.00 12/15/00 2,275,000
5,000 Empire Gas Corp. .................... 7.00 07/15/04 4,500,000
----------
6,775,000
----------
Publishing (4.5%)
9,000 Affiliated Newspapers Investments,
Inc. ............................... 13.25++ 07/01/06 5,805,000
5,000 United States Banknote Corp. ........ 10.375 06/01/02 3,650,000
----------
9,455,000
----------
Restaurants (7.7%)
12,500 American Restaurant Group Holdings,
Inc. ............................... 14.00++ 12/15/05 5,781,250
2,000 Carrols Corp. ....................... 11.50 08/15/03 2,060,000
12,150 Flagstar Corp. ...................... 11.25 11/01/04 8,505,000
----------
16,346,250
----------
Retail (2.8%)
2,030 Cort Furniture Rental Corp. ......... 12.00 09/01/00 2,172,100
2,500 County Seat Stores Co. .............. 12.00 10/01/02 1,812,500
2,100 Thrifty Payless Holdings, Inc. ...... 11.625+ 04/15/06 2,058,000
----------
6,042,600
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Retail - Food Chains (0.5%)
$ 1,000 Ralphs Grocery Co. .................. 11.00 % 06/15/05 $ 950,000
----------
Textiles - Apparel Manufacturers
(3.6%)
7,813 JPS Textile Group, Inc. ............. 10.85 06/01/99 6,328,530
2,000 U.S. Leather, Inc. .................. 10.25 07/31/03 1,400,000
----------
7,728,530
----------
TOTAL CORPORATE BONDS
(Identified Cost $212,559,181)............................... 191,805,425
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (a) (4.3%)
Automotive (0.0%)
91 Northern Holdings Industrial Corp. (Restricted) (b)....... --
----------
Computer Equipment (0.1%)
222,958 Memorex Telex NV (ADR) (Netherlands) (b).................. 264,763
----------
Entertainment/Gaming & Lodging (0.3%)
5,000 Motels of America, Inc. - 144A*........................... 425,000
5,210 Trump Taj Mahal (Class A)................................. 139,367
----------
564,367
----------
Foods & Beverages (0.3%)
225,000 Specialty Foods Acquisition Corp. (Restricted) - 144A*.... 618,750
----------
Manufacturing - Diversified (3.2%)
395,150 Thermadyne Holdings Corp. (b)............................. 6,766,944
----------
Publishing (0.1%)
9,000 Affiliated Newspapers Investments, Inc. (Class B)......... 270,000
----------
Restaurants (0.1%)
12,500 American Restaurant Group Holdings, Inc. - 144A*.......... 187,500
----------
Retail (0.2%)
95,000 Thrifty Payless Holdings, Inc. (Class C).................. 475,000
----------
TOTAL COMMON STOCKS
(Identified Cost $18,514,317)............................. 9,147,324
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1996 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCK (0.9%)
Entertainment/Gaming & Lodging
80,000 Fitzgeralds Gaming Corp. (Units)+++ $3.75
(Identified Cost $2,000,000).............................. $ 2,020,000
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WARRANTS (a) (0.7%)
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 (0.1%)
5,000 Crown Packaging Holdings, Ltd.
(Canada) - 144A*.............................. 11/01/03 275,000
----------
Entertainment/Gaming & Lodging (0.0%)
3,263 Casino America, Inc. .......................... 11/15/96 --
8,650 Fitzgeralds Gaming Corp. - 144A*............... 03/15/99 60,550
----------
60,550
----------
Manufacturing (0.1%)
5,000 BPC Holdings Corp. ............................ 04/15/04 62,500
25,000 Uniroyal Technology Corp. ..................... 06/01/03 50,000
----------
112,500
----------
Oil & Gas (0.0%)
6,900 Empire Gas Corp. .............................. 07/15/04 69,000
----------
Retail (0.4%)
5,000 County Seat Holdings Co. ...................... 10/15/98 100,000
165,000 New Cort Holdings Corp. ....................... 09/01/98 742,500
----------
842,500
----------
Retail - Food Chains (0.0%)
19,512 Grand Union Co. (Series 1) (b)................. 06/16/00 --
39,026 Grand Union Co. (Series 2) (b)................. 06/16/00 --
----------
--
----------
TOTAL WARRANTS
(Identified Cost $1,449,513)................................ 1,548,550
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (1.9%)
REPURCHASE AGREEMENT
$ 4,006 The Bank of New York (dated
01/31/96; proceeds $4,006,248;
collateralized by $3,836,332 U.S.
Treasury Note 6.25% due 08/31/00
valued at $4,085,720) (Identified
Cost $4,005,608).................. 5.75 % 02/01/96 $ 4,005,608
----------
TOTAL INVESTMENTS
(Identified Cost $238,528,619) (e)................. 98.1% 208,526,907
OTHER ASSETS IN EXCESS OF LIABILITIES................ 1.9 3,945,408
---- ----------
NET ASSETS......................................... 100.0% $212,472,315
====== ============
</TABLE>
- -------------------------
<TABLE>
<C> <S>
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/stocks with attached warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Non-income producing securities.
(b) Acquired through exchange offer.
(c) Non-income producing security, issuer in bankruptcy.
(d) Non-income producing security, bond in default.
(e) The aggregate cost for federal income tax purposes is $239,036,060; the
aggregate gross unrealized appreciation is $7,697,012 and the aggregate gross
unrealized depreciation is $38,206,165, resulting in net unrealized
depreciation of $30,509,153.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1996 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $238,528,619)......... $ 208,526,907
Receivable for:
Interest............................ 3,955,597
Investments sold.................... 303,125
Prepaid expenses and other assets....... 19,792
-----------
TOTAL ASSETS........................ 212,805,421
-----------
LIABILITIES:
Investment management fee payable....... 143,372
Accrued expenses and other payables..... 189,734
-----------
TOTAL LIABILITIES................... 333,106
-----------
NET ASSETS:
Paid-in-capital......................... 344,428,742
Net unrealized depreciation............. (30,001,712)
Accumulated undistributed net investment
income................................. 3,023,126
Accumulated net realized loss........... (104,977,841)
-----------
NET ASSETS.......................... $ 212,472,315
===========
NET ASSET VALUE PER SHARE,
35,611,307 shares outstanding
(unlimited shares authorized of $.01
par value)............................. $5.97
====
STATEMENT OF OPERATIONS
For the six months ended January 31, 1996 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME........................... $13,439,029
---------
EXPENSES
Investment management fee................. 804,115
Transfer agent fees and expenses.......... 76,472
Professional fees......................... 26,776
Custodian fees............................ 20,577
Shareholder reports and notices........... 19,695
Registration fees......................... 18,637
Trustees' fees and expenses............... 11,020
Other..................................... 3,921
---------
TOTAL EXPENSES........................ 981,213
---------
NET INVESTMENT INCOME................. 12,457,816
---------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss......................... (9,000,079)
Net change in unrealized depreciation..... 4,926,576
---------
NET LOSS.............................. (4,073,503)
---------
NET INCREASE.............................. $ 8,384,313
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 1996 JULY 31, 1995
- ------------------------------------------------------------------------------------------
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 12,457,816 $ 24,934,195
Net realized loss............................... (9,000,079) (20,031,015)
Net change in unrealized depreciation........... 4,926,576 12,554,315
------------ ------------
NET INCREASE................................ 8,384,313 17,457,495
------------ ------------
Dividends from net investment income............ (12,517,374) (25,533,307)
------------ ------------
TOTAL DECREASE.............................. (4,133,061) (8,075,812)
NET ASSETS:
Beginning of period............................. 216,605,376 224,681,188
------------ ------------
END OF PERIOD
(Including undistributed net investment
income of $3,023,126 and $3,082,684,
respectively)............................... $212,472,315 $216,605,376
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS January 31, 1996 (unaudited)
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 are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered
<PAGE> 12
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS January 31, 1996 (unaudited) continued
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 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 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 six months ended January 31, 1996,
aggregated $63,374,403 and $64,457,348, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At January 31, 1996, the Trust had transfer agent fees
and expenses payable of approximately $14,000.
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 six months ended January 31, 1995
included in Trustees'
<PAGE> 13
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS January 31, 1996 (unaudited) continued
fees and expenses in the Statement of Operations amounted to $1,173. At January
31, 1996, the Trust had an accrued pension liability of $50,775 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, July 31, 1995, and January 31, 1996.................... 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> <S> <S>
January 30, 1996 $0.0525 February 9, 1996 February 23, 1996
February 27, 1996 $0.0525 March 8, 1996 March 22, 1996
</TABLE>
6. FEDERAL INCOME TAX STATUS
At July 31, 1995, 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)
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1999 2000 2002 2003 TOTAL
- ---- ------- ------- ------ ------- -------
$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.
<PAGE> 14
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS January 31, 1996 (unaudited) continued
7. SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------
1/31/96 10/31/95
------------------ -------------------
PER PER
TOTAL* SHARE TOTAL* SHARE
------- ------ -------- ------
<S> <C> <C> <C> <C>
Total investment income......................................................... $ 7,051 $ 0.20 $ 6,388 $ 0.18
Net investment income........................................................... 6,566 0.18 5,892 0.17
Net realized and unrealized gain (loss)......................................... 15,311 0.43 (19,385) (0.54)
<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
</TABLE>
- ---------------------
* Amounts in thousands.
<PAGE> 15
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 SIX FOR THE YEAR ENDED JULY 31
MONTHS ENDED -------------------------------------------------
JANUARY 31, 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <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 $ 6.44
------ ------ ------ ------ ------ ------
Net investment income............................... 0.35 0.70 0.69 0.77 0.91 0.77
Net realized and unrealized gain (loss)............. (0.11) (0.21) (0.28) 0.21 0.50 (0.70)
------ ------ ------ ------ ------ ------
Total from investment operations.................... 0.24 0.49 0.41 1.08 1.41 0.07
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income............................ (0.35) (0.72) (0.70) (0.91) (0.66) (0.77)
Net realized gain................................ -- -- -- -- -- (0.06)
------ ------ ------ ------ ------ ------
Total dividends and distributions................... (0.35) (0.72) (0.70) (0.91) (0.66) (0.83)
------ ------ ------ ------ ------ ------
Net asset value, end of period...................... $ 5.97 $ 6.08 $ 6.31 $ 6.60 $ 6.43 $ 5/58
====== ====== ====== ====== ====== ======
Market value, end of period......................... $6.250 $6.125 $ 6.25 $6.875 $ 6.50 $5.125
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+............................ 8.00%(1) 10.29% 0.90% 22.16% 42.17% 3.03%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................ 0.92%(2) 0.93% 0.94% 0.95% 0.98% 1.07%
Net investment income............................... 11.62%(2) 11.81% 10.33% 12.17% 14.83% 14.85%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............. $212,472 $216,605 $224,681 $235,039 $228,283 $210,595
Portfolio turnover rate............................. 31%(1) 70% 113% 138% 99% 129%
</TABLE>
- ---------------------
(1) Not annualized.
(2) Annualized.
+ 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> 16
<TABLE>
<S> <C>
TRUSTEES
- ----------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson HIGH
Paul Kolton INCOME
Michael E. Nugent ADVANTAGE
Philip J. Purcell TRUST II
Jon 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
SEMIANNUAL REPORT
JANUARY 31, 1996
The financial statements included herein have
been taken from the records of the Trust without
examination by the independent accountants and
accordingly they do not express an option thereon.
</TABLE>
