<PAGE> 1
HIGH INCOME ADVANTAGE TRUST II Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS January 31, 1997
DEAR SHAREHOLDER:
Continuing its strong performance of the first half of 1996, the high-yield
market posted solid returns during the past six months and outperformed most of
the other fixed-income markets. With the economy rebounding and with corporate
earnings holding up well, the market was able to offset what was a pretty weak
fixed-income environment.
A year ago, investors were anticipating a recession due to concern over a
then-weakening economy. U.S. Treasury yields were lower than today's levels,
while yields in the high-yield market were higher. As the year played out, we
saw the economy bounce back, corporate earnings hold up, the equity markets
reach all time highs and recession fears ease. The result was a somewhat
volatile U.S. Treasury market, while the high-yield market held up well given
the stronger-than-expected economy. Although yield spreads narrowed during the
year, many B-rated issues still provide an attractive yield advantage over U.S.
Treasuries (nearly 400 basis points) and trade at discounts to par.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, High Income Advantage Trust II produced a total return of
9.25 percent for the six-month period ended January 31, 1997, 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) on the last day of the period, the Trust's
total return for the same period was 2.40 percent. Over the past six months, the
Trust continued to distribute regular income dividends at a rate of $0.0525 per
share per month. For the full six-month period, the Trust's distributions
totaled approximately $0.44 per share, including an extra income dividend of
$0.1277 per share paid on December 20, 1996. On January 31, 1997, the Trust's
net assets exceeded $202.6 million.
As the economy continued to expand over the past few years, we have tended to
concentrate on B-rated issues. In a growing economy, one can find undervalued,
"upgrade" candidates in this sector of the market that
<PAGE> 2
HIGH INCOME ADVANTAGE TRUST II
LETTER TO THE SHAREHOLDERS January 31, 1997, continued
provide attractive yields as well as appreciation potential. As such, we
continue to feel that many of these issues are very attractive long-term
investments. However, given a potentially slowing economy down the road, we have
begun to take some defensive steps in the portfolio. During the second half of
1996, we upgraded the portfolio by increasing our allocation to the
higher-quality end of the market (BB-rated issues or higher) from 10 percent to
20 percent. We also sold many of our heavy cyclical positions and are now
focused mainly on the more predictable recession-resistant growth sectors. In
certain of these sectors, such as media and telecommunications, we expect to see
continued consolidation, which should bode well for most industry participants.
LOOKING AHEAD
Overall, we continue our focus on discounted B-rated investments yielding 10
percent or higher. However, while we are not expecting a recession in 1997, we
have begun to take a more defensive approach in case of any further economic
slowing down the road.
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 a
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,
/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 27, 1996, an annual meeting of the Trust's shareholders was held for
the purpose of voting on three separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For................................................................ 20,212,936
Withheld........................................................... 518,123
Charles A. Fiumefreddo
For................................................................ 20,210,641
Withheld........................................................... 520,418
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Edwin J. Garn, John R. Haire, Dr. Manuel H. Johnson,
Michael E. Nugent, Philip J. Purcell and John L. Schroeder.
(2) CONTINUANCE OF THE CURRENTLY EFFECTIVE INVESTMENT MANAGEMENT AGREEMENT WITH
DEAN WITTER INTERCAPITAL INC.:
<TABLE>
<S> <C>
For................................................................ 19,454,929
Against............................................................ 414,539
Abstain............................................................ 861,591
</TABLE>
(3) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE TRUST'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For................................................................ 19,871,671
Against............................................................ 254,143
Abstain............................................................ 605,245
</TABLE>
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (93.6%)
Aerospace (1.5%)
$ 3,150 Sabreliner Corp. (Series B).......... 12.50 % 04/15/03 $ 3,071,250
----------
Automotive (4.9%)
2,000 APS, Inc. ........................... 11.875 01/15/06 2,125,000
3,850 Envirotest Systems, Inc. ............ 9.125 03/15/01 3,638,250
4,000 Toyota Motor Credit Corp. ........... 15.00 09/26/97 4,233,120
----------
9,996,370
----------
Broadcast Media (3.1%)
2,000 Adams Outdoor Advertising L.P. ...... 10.75 03/15/06 2,140,000
2,000 Paxson Communications Corp. ......... 11.625 10/01/02 2,105,000
2,000 Spanish Broadcasting System, Inc. ... 7.50 06/15/02 2,100,000
----------
6,345,000
----------
Business Services (5.0%)
4,333 Anacomp, Inc. ....................... 13.00+ 06/04/02 4,506,728
5,500 Xerox Credit Corp. .................. 15.00 06/10/97 5,676,110
----------
10,182,838
----------
Cable & Telecommunications (17.1%)
4,245 Adelphia Communications Corp. (Series
B).................................. 9.50+ 02/15/04 3,767,446
6,500 American Communication Services,
Inc. ............................... 12.75++ 04/01/06 3,770,000
5,500 AT&T Capital Corp. .................. 15.00 05/05/97 5,628,315
2,000 Cablevision Systems Corp. ........... 9.875 04/01/23 1,945,000
2,000 Charter Communication South
East L.P. (Series B)................ 11.25 03/15/06 2,120,000
4,010 Falcon Holdings Group L.P. (Series
B).................................. 11.00+ 09/15/03 3,729,300
2,000 Frontiervision, Inc. ................ 11.00 10/15/06 2,075,000
4,000 Hyperion Telecommunication, Inc.
(Series B).......................... 13.00++ 04/15/03 2,320,000
20,050 In-Flight Phone Corp. (Series
B)(a)............................... 14.00++ 05/15/02 2,807,000
2,000 IXC Communications, Inc. (Series
B).................................. 12.50 10/01/05 2,240,000
2,000 Peoples Telephone Co., Inc. ......... 12.25 07/15/02 2,110,000
2,000 Rifkin Acquisition Partners L.P. .... 11.125 01/15/06 2,110,000
----------
34,622,061
----------
Computer Equipment (2.8%)
2,000 Unisys Corp. ........................ 15.00 07/01/97 2,085,000
3,000 Unisys Corp. (Conv.)................. 8.25 03/15/06 3,637,830
----------
5,722,830
----------
Consumer Products (1.3%)
2,500 J.B. Williams Holdings, Inc. ........ 12.00 03/01/04 2,587,500
----------
Containers (2.1%)
2,000 Mail - Well Corp. ................... 10.50 02/15/04 2,050,000
2,000 Packaging Resources, Inc. ........... 11.625 05/01/03 2,120,000
----------
4,170,000
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Electrical & Alarm Systems (2.1%)
$ 4,500 Mosler, Inc. ........................ 11.00 % 04/15/03 $ 4,320,000
----------
Entertainment/Gaming & Lodging (11.3%)
2,000 AMF Group Inc. (Series B)............ 10.875 03/15/06 2,160,000
3,000 Fitzgeralds Gaming Corp. (Units)++... 13.00 12/31/02 2,625,000
4,000 Lady Luck Gaming Finance Corp. ...... 11.875 03/01/01 3,950,000
7,050 Motels of America, Inc. (Series B)... 12.00 04/15/04 5,974,875
2,000 Players International, Inc. ......... 10.875 04/15/05 2,025,000
2,000 Plitt Theaters, Inc. (Canada)........ 10.875 06/15/04 2,032,500
2,000 Station Casinos, Inc. ............... 9.625 06/01/03 2,020,000
2,000 Stuart Entertainment, Inc. - 144A*... 12.50 11/15/04 2,047,500
----------
22,834,875
----------
Financial (4.2%)
4,000 General Electric Capital Corp. ...... 13.50 01/20/98 4,291,880
4,000 Household Finance Corp. ............. 15.00 09/25/97 4,232,880
----------
8,524,760
----------
Foods & Beverages (7.2%)
4,144 Envirodyne Industries, Inc. ......... 10.25 12/01/01 4,061,120
2,000 General Mills, Inc. ................. 13.50 01/21/98 2,146,360
21,000 Specialty Foods Acquisition Corp.
(Series B).......................... 13.00++ 08/15/05 8,400,000
----------
14,607,480
----------
Healthcare (2.8%)
5,250 Unilab Corp. ........................ 11.00 04/01/06 3,622,500
2,000 Unison Healthcare Corp. - 144A*...... 12.25 11/01/06 2,135,000
----------
5,757,500
----------
Manufacturing (4.3%)
2,000 Berry Plastics Corp. ................ 12.25 04/15/04 2,220,000
1,750 Exide Electronics Group, Inc. (Series
B).................................. 11.50 03/15/06 1,881,250
2,000 International Wire Group, Inc. ...... 11.75 06/01/05 2,135,000
2,500 Uniroyal Technology Corp. ........... 11.75 06/01/03 2,518,750
----------
8,755,000
----------
Manufacturing - Diversified (6.5%)
2,000 Foamex L.P. ......................... 11.875 10/01/04 2,165,000
2,000 Interlake Corp. ..................... 12.125 03/01/02 2,100,000
2,000 J.B. Poindexter & Co., Inc. ......... 12.50 05/15/04 1,980,000
2,550 Jordan Industries, Inc. ............. 10.375 08/01/03 2,543,625
5,300 Jordan Industries, Inc. ............. 11.75++ 08/01/05 4,452,025
2,500 Starcraft Industrial Corp. (a)....... 16.50 01/15/98 --
----------
13,240,650
----------
Oil & Gas (1.1%)
2,500 Empire Gas Corp. .................... 7.00 07/15/04 2,162,500
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Publishing (2.9%)
$ 2,000 Affiliated Newspapers Investments,
Inc. ............................... 13.25++% 07/01/06 $ 1,645,000
2,000 American Media Operations, Inc. ..... 11.625 11/15/04 2,135,000
2,000 United States Banknote Corp. ........ 10.375 06/01/02 1,980,000
----------
5,760,000
----------
Restaurants (6.1%)
12,025 American Restaurant Group Holdings,
Inc. ............................... 14.00++ 12/15/05 5,351,125
2,000 Carrols Corp. ....................... 11.50 08/15/03 2,110,000
5,250 Flagstar Corp. ...................... 11.25 11/01/04 2,178,750
2,500 FRD Acquisition Corp. (Series B)..... 12.50 07/15/04 2,625,000
----------
12,264,875
----------
Retail (1.7%)
10,375 County Seat Stores Co. (b)........... 12.00 10/01/02 3,423,750
----------
Retail - Food Chains (2.9%)
2,000 Jitney-Jungle Stores................. 12.00 03/01/06 2,130,000
4,000 Pathmark Stores, Inc. ............... 9.625 05/01/03 3,800,000
----------
5,930,000
----------
Textiles (2.7%)
2,000 Reeves Industries, Inc. ............. 11.00 07/15/02 1,910,000
4,000 U.S. Leather, Inc. .................. 10.25 07/31/03 3,520,000
----------
5,430,000
----------
TOTAL CORPORATE BONDS
(Identified Cost $209,364,422)............................... 189,709,239
----------
<CAPTION>
NUMBER OF
SHARES
- ---------
<C> <S> <C>
COMMON STOCKS (c) (0.9%)
Automotive (0.0%)
91 Northern Holdings Industrial Corp. (d)....................... --
----------
Entertainment/Gaming & Lodging (0.1%)
5,000 Motels of America, Inc. - 144A*.............................. 200,000
----------
Foods & Beverages (0.1%)
225,000 Specialty Foods Acquisition Corp. - 144A*.................... 225,000
----------
Manufacturing - Diversified (0.3%)
25,000 Thermadyne Holdings Corp. (d)................................ 643,750
----------
Publishing (0.4%)
7,000 Affiliated Newspapers Investments, Inc. (Class B)............ 686,000
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Restaurants (0.0%)
12,500 American Restaurant Group Holdings, Inc. - 144A*............. $ 12,500
----------
TOTAL COMMON STOCKS
(Identified Cost $7,411,839)................................. 1,767,250
----------
PREFERRED STOCK (0.9%)
Entertainment/Gaming & Lodging
80,000 Fitzgeralds Gaming Corp. (Units)++
(Identified Cost $2,000,000)................................. 1,840,000
----------
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- --------- --------
<C> <S> <C> <C>
WARRANTS (c) (0.1%)
Aerospace (0.0%)
6,000 Sabreliner Corp. - 144A*........................ 04/15/03 60,000
----------
Cable & Telecommunications (0.0%)
2,000 Hyperion Telecommunication, Inc. (Series
B) - 144A*..................................... 04/01/01 60,000
12,900 In-Flight Phone Corp. - 144A*................... 08/31/02 129
----------
60,129
----------
Containers (0.0%)
5,000 Crown Packaging Holdings, Ltd. - 144A*.......... 11/01/03 --
----------
Entertainment/Gaming & Lodging (0.0%)
3,000 Fitzgeralds Gaming Corp. ....................... 12/19/98 3,029
2,900 Fitzgeralds Gaming Corp. - 144A*................ 03/15/99 --
----------
3,029
----------
Manufacturing (0.1%)
1,750 Exide Electronics Group, Inc. - 144A*........... 03/15/06 83,663
25,000 Uniroyal Technology Corp. ...................... 06/01/03 25,000
----------
108,663
----------
Oil & Gas (0.0%)
6,900 Empire Gas Corp. ............................... 07/15/04 34,500
----------
Retail (0.0%)
5,000 County Seat Holdings Co. ....................... 10/15/98 --
----------
TOTAL WARRANTS
(Identified Cost $1,350,874)................................. 266,321
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST II
PORTFOLIO OF INVESTMENTS January 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (2.8%)
REPURCHASE AGREEMENT
$ 5,555 The Bank of New York (dated 01/31/97;
proceeds $5,557,523; collateralized
by $5,600,812 Federal National
Mortgage Association 6.25% due
11/10/99 valued at $5,666,195)
(Identified Cost $5,555,093)........ 5.25 % 02/03/97 $ 5,555,093
----------
TOTAL INVESTMENTS
(Identified Cost $225,682,228) (e).................... 98.3% 199,137,903
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES........................................ 1.7 3,533,775
---- ----------
NET ASSETS............................................ 100.0% $202,671,678
==== ==========
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* Resale is restricted to qualified institutional investors.
+ Payment-in-kind security.
++ Currently a zero coupon bond that will pay interest at the rate shown at a
future specified date.
++ Consists of one or more class of securities traded together as a unit; generally
stocks or bonds with attached warrants.
(a) Non-income producing security; issuer in bankruptcy.
(b) Non-income producing security; bond in default.
(c) Non-income producing security.
(d) Acquired through exchange offer.
(e) The aggregate cost for federal income tax purposes approximates identified cost.
The aggregate gross unrealized appreciation is $8,921,560 and the aggregate
gross unrealized depreciation is $35,465,885, resulting in net unrealized
depreciation of $26,544,325.
</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, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $225,682,228)....................................... $199,137,903
Cash.................................................................. 79,831
Interest receivable................................................... 4,497,333
Prepaid expenses and other assets..................................... 6,601
------------
TOTAL ASSETS...................................................... 203,721,668
------------
LIABILITIES:
Payable for:
Investments purchased............................................. 752,805
Investment management fee......................................... 147,027
Accrued expenses and other payables................................... 150,158
------------
TOTAL LIABILITIES................................................. 1,049,990
------------
NET ASSETS:
Paid-in-capital....................................................... 344,428,742
Net unrealized depreciation........................................... (26,544,325)
Accumulated undistributed net investment income....................... 2,103,443
Accumulated net realized loss......................................... (117,316,182)
------------
NET ASSETS........................................................ $202,671,678
============
NET ASSET VALUE PER SHARE
35,611,307 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $5.69
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended January 31, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME....................................................... $ 13,741,055
------------
EXPENSES:
Investment management fee............................................. 789,634
Transfer agent fees and expenses...................................... 68,226
Professional fees..................................................... 27,767
Registration fees..................................................... 17,495
Shareholder reports and notices....................................... 17,480
Custodian fees........................................................ 13,042
Trustees' fees and expenses........................................... 6,929
Other................................................................. 3,506
------------
TOTAL EXPENSES.................................................... 944,079
------------
NET INVESTMENT INCOME............................................. 12,796,976
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss..................................................... (14,989,856)
Net change in unrealized depreciation................................. 7,870,822
------------
NET LOSS.......................................................... (7,119,034)
------------
NET INCREASE.......................................................... $ 5,677,942
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST II
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JANUARY 31, ENDED
1997 JULY 31, 1996
------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 12,796,976 $ 25,723,845
Net realized loss................................... (14,989,856) (6,348,564)
Net change in unrealized depreciation............... 7,870,822 513,141
------------ ------------
NET INCREASE.................................... 5,677,942 19,888,422
Dividends from net investment income................ (15,765,126) (23,734,936)
------------ ------------
NET DECREASE.................................... (10,087,184) (3,846,514)
NET ASSETS:
Beginning of period................................. 212,758,862 216,605,376
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $2,103,443 and $5,071,593, respectively)..... $202,671,678 $212,758,862
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS January 31, 1997 (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'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, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange; the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital, Inc. (the "Investment Manager") that
sale or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees; (4)
certain of the portfolio securities may be valued by an outside pricing service
approved by the Trustees. The pricing service may utilize a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
<PAGE> 13
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS January 31, 1997 (unaudited) continued
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 temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager, the
Trust pays 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> 14
HIGH INCOME ADVANTAGE TRUST II
NOTES TO FINANCIAL STATEMENTS January 31, 1997 (unaudited) continued
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended January 31, 1997, aggregated
$95,542,247 and $100,620,889, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At January 31, 1997, the Trust had transfer agent fees
and expenses payable of approximately $26,000.
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, 1997
included in Trustees' fees and expenses in the Statement of Operations amounted
to $653. At January 31, 1997, the Trust had an accrued pension liability of
$48,657 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, July 31, 1996 and January 31, 1997...................... 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>
January 28, 1997 $0.0525 February 7, 1997 February 21, 1997
February 25, 1997 $0.0525 March 7, 1997 March 21, 1997
</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
which is available through July 31 in the following years:
<TABLE>
<CAPTION>
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> 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, 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $5.97 $6.08 $6.31
--------- ----- -----
Net investment income........................................ 0.36 0.73 0.70
Net realized and unrealized gain (loss)...................... (0.20) (0.17) (0.21)
--------- ----- -----
Total from investment operations............................. 0.16 0.56 0.49
--------- ----- -----
Less dividends from net investment income.................... (0.44) (0.67) (0.72)
--------- ----- -----
Net asset value, end of period............................... $5.69 $5.97 $6.08
========= ===== =====
Market value, end of period.................................. $6.250 $6.125 $6.125
========= ===== =====
TOTAL INVESTMENT RETURN+..................................... 9.25%(1) 11.31% 10.29%
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................................... 0.90%(2) 0.91% 0.93%
Net investment income........................................ 12.15%(2) 12.06% 11.81%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...................... $202,672 $212,759 $216,605
Portfolio turnover rate...................................... 89%(1) % 89 % 70
<CAPTION>
FOR THE YEAR ENDED JULY 31
-------------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $6.60 $6.43 $5.68
----- ----- -----
Net investment income........................................ 0.69 0.77 0.91
Net realized and unrealized gain (loss)...................... (0.28) 0.31 0.50
----- ----- -----
Total from investment operations............................. 0.41 1.08 1.41
----- ----- -----
Less dividends from net investment income.................... (0.70) (0.91) (0.66)
----- ----- -----
Net asset value, end of period............................... $6.31 $6.60 $6.43
----- ----- -----
----- ----- -----
Market value, end of period.................................. $6.25 $6.875 $6.50
----- ----- -----
----- ----- -----
TOTAL INVESTMENT RETURN+..................................... 0.90% 22.16% 42.17%
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................................... 0.94% 0.95% 0.98%
Net investment income........................................ 10.33% 12.17% 14.83%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...................... $224,681 $235,039 $228,283
Portfolio turnover rate...................................... %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.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<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
HIGH
Barry Fink INCOME
Vice President, Secretary and General Counsel ADVANTAGE
TRUST II
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
The financial statements included herein have been
taken from the records of the Trust without Semiannual Report
examination by the independent accountants and January 31, 1997
accordingly they do not express an opinion thereon.
