<PAGE> 1
HIGH INCOME ADVANTAGE TRUST III
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
The high-yield bond market was very rewarding for investors in 1993.
Benefiting from the general decline in interest rates that characterized the
first 10 months of the year, as well as the continued improvement in corporate
credit quality, the high-yield market concluded 1993 as one of the fixed-income
market's top performers. What's more, 1993 marked the third successive year of
excellent returns for this market. In fact, over the past three years, the
high-yield market has outperformed all other fixed-income markets.
The high-yield market's continued strength was reflected in High Income
Advantage Trust III's impressive total return for the fiscal year ended January
31, 1994 of 26.21 percent, based on its $7.75 closing market price per share on
the New York Stock Exchange (NYSE). Based on its net asset value (NAV) of $7.57
per share on January 31, 1994, the Trust's total return for the year was an
equally impressive 26.50 percent. As of January 31, 1994, the Trust's net assets
totaled more than $97 million, while its closing NYSE market price represented a
2.38 percent premium to NAV.
Over the past 12 months, the Trust continued to distribute regular monthly
income dividends at a rate of $0.06 per share. For the full 12-month period, the
Trust paid income dividends totaling $0.8474 per share, including an extra
income dividend of $0.1274 per share paid on December 23, 1993. With interest
rates still at historical lows despite the recent uptick, shareholders should be
aware that in 1994 it may be difficult for the Trust to meet or exceed the total
income distributions of the past 12 months. As always, however, the Trust will
strive to provide shareholders with an attractive level of income.
INVESTMENT STRATEGY
Our outlook for the high-yield market entering 1993 was favorable, based on
an improving economy and a low interest rate environment, and the Trust began
the year positioned to take advantage of a rising market. As the year began, we
saw many financially sound and fundamentally improving companies still trading
at sharply discounted prices within the B-rated sector of the market. The Trust
continued to maintain its focus on discounted, B-rated bonds throughout the
fiscal year, as this sector in our opinion offered the most attractive return
potential. As the economic environment improved in the second half of 1993, and
as many issuers took steps toward upgrading their credit quality, the Trust was
rewarded by the above-average appreciation realized in many of these discounted,
B-rated issues. Some of the top performers held by the Trust during the year
were Alco Health Services Corp., Collins & Aikman, Gaylord Container Corp. and
Stone Container Corp. In most cases, as the issuer's prospects have improved, so
too have their bond prices.
During the fiscal year, the Trust also was able to capitalize on the
ability of bond issuers to strengthen their credit quality by refinancing debt
in the prevailing low interest rate environment. As this trend has accelerated,
the Trust has captured significant capital appreciation. Among the Trust's
current holdings, several issuers have recently completed refinancings,
including American Standard, Inc., Fort Howard Corp. and Playtex Family Products
Corp. Finally, the Trust's focus on financially sound issuers with improving
credit trends, coupled with the strengthening economic environment, kept credit
<PAGE> 2
disappointments during the year to a minimum. This, in turn, resulted in more
appreciation for the Trust's shareholders, as well as a steady level of income
throughout 1993.
MARKET OUTLOOK
Looking further into 1994, we remain optimistic about the prospects for the
high-yield bond market, based on our expectations for continued growth in the
economy and further improvements in corporate credit quality. We would expect
more high-yield issuers to either tap the equity markets in order to pay down
debt or refinance their existing debt in today's lower interest rate
environment. If the economy continues to recover and high-yield issuers work
toward strengthening their balance sheets, we would anticipate that the
attractive yields available today will provide investors not only with a healthy
yield advantage over alternative fixed-income products, but also with an
excellent opportunity for further capital appreciation in the event yields
decline.
We would like to remind you that the Trustees have approved a procedure
whereby the Trust, when appropriate, may attempt to reduce or eliminate a market
value discount from net asset value by repurchasing shares in the open market or
in privately negotiated transactions at a price not above market value, if any
or net asset value, whichever is lower at the time of purchase.
We appreciate your support of High Income Advantage Trust III, and look
forward to continuing to serve your investment needs.
Very truly yours,
Charles A. Fiumefreddo
Chairman of The Board
<PAGE> 3
HIGH INCOME ADVANTAGE TRUST III
PORTFOLIO OF INVESTMENTS January 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ----------- -------- ---------- -------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (83.1%)
AEROSPACE (4.8%)
$ 2,000 PA Holdings Corp. ........ 13.75% 7/15/99 $2,132,500
2,500 Sabreliner Corp. ......... 12.50 4/15/03 2,525,000
---------
4,657,500
---------
AIRLINES (3.5%)
3,000 GPA Delaware, Inc. ....... 8.75 12/15/98 2,640,000
1,637 Trans World Airlines,
Inc. .................... 8.00+ 11/ 3/00 728,465
---------
3,368,465
---------
BUILDING & CONSTRUCTION (3.2%)
3,000 American Standard, Inc.... 14.25 6/30/03 3,165,000
---------
CABLE & TELECOMMUNICATIONS (4.3%)
3,000 Cablevision Systems
Corp. ................... 14.00 11/15/03 3,120,000
1,000 Marcus Cable Co. ......... 11.875 10/ 1/05 1,060,000
---------
4,180,000
---------
CHEMICALS (4.5%)
1,000 General Chemical.......... 14.00 11/ 1/98 1,113,750
2,960 Georgia Gulf Corp. ....... 15.00 4/15/00 3,285,600
---------
4,399,350
---------
COMPUTER EQUIPMENT (4.1%)
3,479 Memorex Telex Corp.(b).... 10.00+ 2/15/98 843,732
2,750 Unisys Corp. ............. 13.50* 7/ 1/97 3,190,000
---------
4,033,732
---------
CONSUMER PRODUCTS (2.2%)
2,000 Playtex Family Products
Corp. ................... 14.75 12/15/97 2,125,000
---------
ENTERTAINMENT, GAMING & LODGING (11.7%)
3,000 Aztar Mortgage Funding,
Inc. .................... 13.50 9/15/96 3,150,000
1,000 Belle Casino,
Inc. -- 144A**........... 12.00 10/15/00 990,000
1,000 Casino America, Inc. ..... 11.50 11/15/01 1,030,000
3,000 Fair Lanes, Inc. ......... 11.875 8/15/97 2,220,000
2,000 Treasure Bay Gaming &
Resort, Inc. -- 144A**... 12.25 11/15/00 1,980,000
2,125 Trump Plaza Holding
Assoc. .................. 12.50+ 6/15/03 2,040,000
---------
11,410,000
---------
FOOD & BEVERAGE (0.5%)
1,000 Specialty Foods
Acquisition Corp. ....... 13.00++ 8/15/05 530,000
---------
FOREST & PAPER PRODUCTS (6.9%)
1,500 Container Corp. .......... 15.50++ 12/ 1/04 2,921,250
2,000 Crown Packaging,
Inc. -- 144A**........... 12.25++ 11/ 1/03 957,500
3,000 Fort Howard Corp. ........ 14.125++ 11/ 1/04 2,865,000
---------
6,743,750
---------
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ----------- -------- ---------- -------------
<C> <S> <C> <C> <C>
HEALTHCARE PRODUCTS (5.7%)
$ 3,000 Alco Health Services
Corp. ................... 14.50% 9/15/99 $3,330,000
2,000 Scherer R.P. Corp. ....... 14.00 11/ 1/99 2,180,000
---------
5,510,000
---------
MANUFACTURING (3.9%)
2,000 Snydergeneral Corp. ...... 14.25 11/15/00 2,115,000
1,000 Talley Industries,
Inc. .................... 12.25++ 10/15/05 625,000
1,000 Uniroyal Technology
Corp. ................... 11.75 6/ 1/03 1,035,000
---------
3,775,000
---------
MANUFACTURING -- DIVERSIFIED INDUSTRIES (7.3%)
2,000 Interlake Corp. .......... 12.125 3/ 1/02 2,105,000
3,000 MS Essex Holdings,
Inc. .................... 16.00++ 5/15/04 2,625,000
3,171 Thermadyne Industries,
Inc.(b).................. 12.75+* 11/ 1/99 2,334,516
---------
7,064,516
---------
OIL & GAS (3.2%)
3,000 Presidio Oil Co. ......... 14.05*** 7/15/02 3,120,000
3,275 TGX Corp.(b) ............. 12.67 4/ 1/94 33
---------
3,120,033
---------
RESTAURANTS (4.3%)
4,000 American Restaurant Group
Holdings
(Units) -- 144A**........ 14.00++ 12/15/05 2,120,000
1,000 Flagstar Corp. ........... 11.25 11/ 1/04 1,042,500
1,000 Foodmaker, Inc. .......... 14.25 5/15/98 1,063,750
---------
4,226,250
---------
RETAIL (4.1%)
2,000 Cort Furniture Rental
Corp. ................... 12.00 9/ 1/00 2,030,000
2,000 County Seat Stores Co.
(Units).................. 12.00 10/ 1/01 2,005,000
---------
4,035,000
---------
RETAIL -- FOOD CHAINS (6.8%)
2,000 Big Bear Stores Co........ 13.75 6/15/99 2,150,000
2,000 Food 4 Less Holdings,
Inc. .................... 15.25++ 12/15/04 1,400,000
9,000 Grand Union Capital Corp.
(Series A)............... 0.00 1/15/07 1,080,000
2,000 Purity Supreme, Inc.
(Series B)............... 11.75 8/ 1/99 2,010,000
---------
6,640,000
---------
TEXTILES (2.1%)
57 Farley, Inc. (Conv.)...... 0.00 1/ 1/12 5,057
2,000 JPS Textiles Group,
Inc. .................... 10.85+ 6/ 1/99 2,015,000
---------
2,020,057
---------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $83,927,346)................. 81,003,653
---------
</TABLE>
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST III
PORTFOLIO OF INVESTMENTS January 31, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
- ----------- ------------
<C> <S> <C>
PREFERRED STOCK (C) (0.2%)
AIRLINES (0.2%)
59,475 Trans World Airlines, Inc. 12.00% +
(Identified Cost $1,735,914)..... $ 178,425
------------
COMMON STOCKS (A)(C) (5.8%)
BUILDING & CONSTRUCTION (2.7%)
84,155 USG Corp........................... 2,671,921
------------
CONSUMER PRODUCTS (0.6%)
295,461 Triton Group, Ltd.................. 590,922
------------
ENTERTAINMENT, GAMING & LODGING (0.2%)
22,350 SPI Holdings, Inc.................. 189,975
------------
FOOD & BEVERAGE (0.0%)
15,000 Specialty Foods -- 144A** ......... 30,000
------------
HEALTHCARE -- DIVERSIFIED (2.3%)
90,816 Charter Medical Corp. ............. 2,213,640
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $13,122,885)................. 5,696,458
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Expiration
Warrants Date Value
- ----------- ----------- ------------
<C> <S> <C> <C>
WARRANTS(A) (1.0%)
AEROSPACE (0.1%)
2,500 Sabreliner Corp.(c)... 4/15/03 50,000
------------
BUILDING & CONSTRUCTION (0.4%)
21,496 USG Corp.(c)........ 5/ 6/98 394,989
------------
ENTERTAINMENT, GAMING & LODGING (0.3%)
1,000 Belle Casino,
Inc. -- 144A**.... 10/15/03 45,000
3,263 Casino America,
Inc. ............. 11/15/96 29,367
10,000 Treasure Bay Gaming
& Resort,
Inc. -- 144A**.... 11/15/98 60,000
200 Trump Plaza Holding
Assoc. ........... 6/18/96 160,000
------------
294,367
------------
FOREST & PAPER PRODUCTS (0.1%)
2,000 Crown Packaging --
144A**........... 10/15/03 60,000
------------
</TABLE>
<TABLE>
<CAPTION>
Number of Expiration
Warrants Date Value
- ----------- ----------- ------------
<C> <S> <C> <C>
MANUFACTURING (0.0%)
10,000 Uniroyal Technology
Corp. ............ 6/ 1/03 $ 27,500
------------
MANUFACTURING -- DIVERSIFIED (0.0%)
394 Thermadyne
Industries,
Inc.(c) .......... 12/31/00 27,580
------------
RETAIL (0.1%)
66,000 New Cort Holdings
Corp. ............ 9/ 1/98 99,531
------------
RETAIL -- FOOD CHAINS (0.0%)
6,930 Purity Supreme, Inc. ... 8/ 6/97 347
------------
TOTAL WARRANTS
(IDENTIFIED COST $501,990).................... 954,314
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ----------- -------- ---------- -------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (6.8%)
U.S. GOVERNMENT OBLIGATIONS (6.4%)
3,000 U.S. Treasury Note........ 13.125 5/15/94 3,084,375
3,000 U.S. Treasury Note........ 12.625 8/15/94 3,147,656
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $6,390,468)......... 6,232,031
-------------
REPURCHASE AGREEMENT (0.4%)
354 The Bank of New York 3.125% due
2/1/94 (dated 1/31/94; proceeds
$353,533; collateralized by
335,240 U.S. Treasury Note 6.25%
due 2/15/03 valued at $360,572)
(Identified Cost $353,502)....... 353,502
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $6,743,970).................. 6,585,533
------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$106,032,105)(D)............... 96.9% 94,418,383
OTHER ASSETS IN EXCESS OF
LIABILITIES.................... 3.1 3,047,371
------- ------------
NET ASSETS....................... 100.0% $ 97,465,754
------- ------------
------- ------------
</TABLE>
- ---------------
* Adjustable rate. Rate shown is the rate in effect at January 31, 1994.
** Resale is restricted to qualified institutional investors.
*** Floating rate. Coupon is linked to the Gas Index. Rate shown is the rate in
effect at January 31, 1994.
+ Payment in kind security.
++ Currently zero coupon under terms of the initial offering.
(a) Non-income producing security.
(b) Non-income producing, issuer in bankruptcy.
(c) Acquired through exchange offer.
(d) The aggregate cost for federal income tax purposes is $106,061,755; the
aggregate gross unrealized appreciation is $3,305,981 and the aggregate
gross unrealized depreciation is $14,949,353; resulting in net unrealized
depreciation of $11,643,372.
See Notes to Financial Statements
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST III
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1994
- -------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $106,032,105)........... $ 94,418,383
Receivable for:
Interest................................. 2,361,090
Investments sold......................... 2,278,158
Prepaid expenses........................... 4,786
Deferred organizational expenses (Note
1)....................................... 786
-------------
TOTAL ASSETS....................... 99,063,203
-------------
LIABILITIES:
Payable for investments purchased.......... 1,474,688
Investment management fee payable (Note
2)....................................... 61,317
Accrued expenses (Note 3).................. 61,444
-------------
TOTAL LIABILITIES.................. 1,597,449
-------------
NET ASSETS:
Paid-in-capital............................ 121,076,287
Accumulated realized loss on
investments - net........................ (12,933,311)
Unrealized depreciation on investments -
net...................................... (11,613,722)
Accumulated undistributed net investment
income................................... 936,500
-------------
NET ASSETS......................... $ 97,465,754
-------------
-------------
NET ASSET VALUE PER SHARE,
12,876,779 shares outstanding (unlimited
authorized shares of $.01 par value)..... $7.57
-----
-----
STATEMENT OF OPERATIONS
For the year ended January 31, 1994
- -------------------------------------------
INVESTMENT INCOME:
INTEREST INCOME........................... $ 11,359,329
-------------
EXPENSES
Investment management fee (Note 2)....... 687,426
Transfer agent fees and expenses (Note
3)..................................... 53,615
Professional fees........................ 49,815
Shareholder reports and notices (Note
3)..................................... 30,200
Custodian fees........................... 25,550
Registration fees........................ 24,100
Trustees' fees and expenses.............. 21,536
Organizational expenses (Note 1)......... 10,599
Other.................................... 8,085
-------------
TOTAL EXPENSES......................... 910,926
-------------
INVESTMENT INCOME - NET.............. 10,448,403
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS -- NET (NOTE 1):
Realized loss on investments - net....... (2,451,938)
Change in unrealized depreciation on
investments - net...................... 14,076,160
-------------
NET GAIN ON INVESTMENTS................ 11,624,222
-------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................... $ 22,072,625
-------------
-------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
January 31, 1994 January 31, 1993
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income - net............................................... $ 10,448,403 $ 11,706,357
Realized gain (loss) on investments - net............................. (2,451,938) 6,836,198
Change in unrealized depreciation on investments - net................ 14,076,160 (8,515,011)
------------------- -------------------
Net increase in net assets resulting from operations.............. 22,072,625 10,027,544
Dividends to shareholders from investment income - net.................. (10,911,783) (11,677,377)
Transactions in shares of beneficial interest - net decrease (Note 4)... -0- (1,128,834)
------------------- -------------------
Total increase (decrease)......................................... 11,160,842 (2,778,667)
NET ASSETS:
Beginning of period..................................................... 86,304,912 89,083,579
------------------- -------------------
END OF PERIOD (including undistributed net investment income of $936,500
and $1,399,880, respectively).......................................... $ 97,465,754 $ 86,304,912
------------------- -------------------
------------------- -------------------
</TABLE>
See Notes to Financial Statements
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- High Income Advantage Trust III (the
"Trust") was organized on November 23, 1988 as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, closed-end management investment company. The Trust
commenced operations on February 28, 1989.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) an equity portfolio security listed or
traded on the New York or American Stock Exchange is valued at its latest
sale price on that exchange (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 bid price; (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 (valuation of securities for which
market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors); (4) certain
of the Trust's portfolio securities may be valued by an outside pricing
service approved by the Trustees. The pricing service utilizes a matrix
system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, in determining
what it believes is the fair valuation of the portfolio securities valued
by such pricing service; and (5) short-term debt securities with remaining
maturities of 60 days or less at time of purchase are valued at amortized
cost; other short-term securities are valued on a mark-to-market basis
until such time as they reach a remaining maturity of 60 days, whereupon
they are valued at amortized cost using their value on the 61st day. All
other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
B. Accounting for Investments -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). In computing
net investment income, the Trust does not amortize premiums or accrue
discounts on fixed income securities in the portfolio, except those
original issue discounts for which amortization is required for federal
income tax purposes. Additionally, with respect to market discount, a
portion of any capital gain realized upon disposition may be
recharacterized as investment income. Realized gains and losses on security
transactions are determined on the identified cost method. Dividend income
is recorded on the ex-dividend date. 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 ex-dividend date.
The amount of dividends and distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations, which may differ from generally accepted accounting
principles. These "book/tax"
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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 reclassifications.
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.
E. Organizational Expenses -- The Trust's Investment Manager paid
organizational expenses of the Trust in the amount of $53,000. The Trust
reimbursed the Investment Manager for these costs which have been deferred
and are being amortized by the Trust on a straight line basis over a period
of sixty months from the commencement of operations.
F. Repurchase Agreements -- The Trust's custodian takes possession on
behalf of the Trust of the collateral pledged for investments in repurchase
agreements. It is the policy of the Trust to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the Trust has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement (the "Agreement") with Dean Witter InterCapital, Inc. (the "Investment
Manager"), the Trust pays its Investment Manager monthly compensation calculated
weekly by applying the following annual rates to the Trust's weekly net assets:
0.75% of the portion of the average weekly net assets not exceeding $250
million; 0.60% of the portion of the average weekly net assets exceeding $250
million but not exceeding $500 million; 0.50% of the portion of the average
weekly net assets exceeding $500 million but not exceeding $750 million; 0.40%
of the portion of average weekly net assets exceeding $750 million but not
exceeding $1 billion; and 0.30% of the portion of the average weekly net assets
exceeding $1 billion. Under the terms of the Agreement, in addition to managing
the Fund's investments, the Investment Manager maintains certain of the Fund'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 Fund 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 Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and the proceeds from sales of portfolio securities for the year ended
January 31, 1994, excluding short-term investments, aggregated $204,276,288 and
$209,457,517, respectively.
Bowne & Co., Inc. is an affiliate of the Fund by virtue of a common Trustee
and Director of Bowne & Co., Inc. During the year ended January 31, 1994 the
Trust paid Bowne & Co., Inc. $3,651 for printing of shareholder reports.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. During the year ended January 31, 1994, the Trust
incurred transfer agent fees and expenses of $53,615, of which $4,016 was
payable at January 31, 1994.
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
4. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Par
Value Capital Paid
of in Excess of
Shares Shares Par Value
---------- -------- ------------
<S> <C> <C> <C>
Balance, January 31, 1992.......................... 13,046,679 $130,467 $122,074,654
Purchase of treasury shares (weighted average
discount 4.0%)*.................................. (169,900) (1,699) (1,127,135)
---------- -------- ------------
Balance, January 31, 1993 and January 31, 1994..... 12,876,779 $128,768 $120,947,519
---------- -------- ------------
---------- -------- ------------
</TABLE>
- ---------------
* The Trustees have voted to retire the shares repurchased.
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>
February 1, 1994 $.06 February 11, 1994 February 25, 1994
March 1, 1994 $.06 March 11, 1994 March 25, 1994
</TABLE>
6. FEDERAL INCOME TAX STATUS -- At January 31, 1994, the Trust had net capital
loss carryovers of approximately $12,904,000, of which $9,648,000 will be
available through January 31, 2000 and $3,256,000 will be available through
January 31, 2002. Such capital loss carryovers may be used to offset future
capital gains, to the extent provided by regulations. To the extent that these
carryover losses are used to offset future capital gains, it is probable that
the gains so offset will not be distributed to shareholders.
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
7. SELECTED QUARTERLY FINANCIAL DATA -- (unaudited)
<TABLE>
<CAPTION>
Quarters Ended*
---------------------------------------------------------------------
1/31/94 10/31/93 7/31/93 4/30/93
--------------- -------------- -------------- ---------------
Per Per Per Per
Total Share Total Share Total Share Total Share
------- ----- ------ ---- ------ ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income..... $ 2,836 $ .22 $2,694 $.21 $3,358 $.26 $ 2,471 $ .19
Investment income - net..... 2,595 .20 2,493 .19 3,119 .24 2,241 .18
Realized and unrealized gain
on investments - net...... 4,582 .36 1,839 .15 2,545 .20 2,658 .20
</TABLE>
- ---------------
* Totals expressed in thousands
<TABLE>
<CAPTION>
Quarters Ended*
---------------------------------------------------------------------
1/31/93 10/31/92 7/31/92 4/30/92
--------------- -------------- -------------- ---------------
Per Per Per Per
Total Share Total Share Total Share Total Share
------- ----- ------ ---- ------ ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income..... $ 2,763 $ .21 $2,974 $.23 $3,504 $.27 $ 3,406 $ .27
Investment income - net..... 2,531 .20 2,744 .21 3,264 .25 3,167 .25
Realized and unrealized gain
(loss) on
investments - net......... 1,825 .14 (4,433) (.34) (1,299) (.10) 2,228 .17
</TABLE>
- ---------------
* Totals expressed in thousands
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST III
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data and ratios for a share of beneficial interest outstanding
throughout each period:
<TABLE>
<CAPTION>
For the period
For the year ended January 31, February 28, 1989*
---------------------------------------- through
1994 1993 1992 1991 January 31, 1990
------- ------- ------- ------- --------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period..................... $ 6.70 $ 6.83 $ 5.18 $ 7.59 $ 9.30
------- ------- ------- ------- --------------------
Investment income - net....... .81 .91 .84 1.11 1.02
Realized and unrealized gain
(loss) on
investments - net........... .91 (.13) 1.58 (2.37) (1.75)
------- ------- ------- ------- --------------------
Total from investment
operations.................... 1.72 .78 2.42 (1.26) (.73)
------- ------- ------- ------- --------------------
Less dividends and other charges:
Dividends from net
investment income........... (.85) (.91) (.77) (1.15) (.95)
Offering costs charged
against capital............. -0- -0- -0- -0- (.03)
------- ------- ------- ------- --------------------
Total dividends and
other charges................. (.85) (.91) (.77) (1.15) (.98)
------- ------- ------- ------- --------------------
Net asset value, end of period... $ 7.57 $ 6.70 $ 6.83 $ 5.18 $ 7.59
------- ------- ------- ------- --------------------
------- ------- ------- ------- --------------------
Market value, end of period...... $ 7.75 $ 6.875 $ 6.50 $ 4.625 $ 7.375
------- ------- ------- ------- --------------------
------- ------- ------- ------- --------------------
TOTAL INVESTMENT RETURN+........... 26.21% 20.77% 60.31% (24.31)% (17.65)%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)................ $97,466 $86,305 $89,084 $68,476 $101,102
Ratio of expenses to average
net assets.................... .99% 1.06% 1.17% 1.05% .93%(2)
Ratio of net investment income
to average net assets......... 11.40% 13.22% 13.53% 17.39% 12.65%(2)
Portfolio turnover rate.......... 231% 118% 137% 44% 59%
</TABLE>
- ---------------
* Commencement of operations.
+ Total investment return is based upon the current market value on the first
and last day of each period reported. Dividends and distributions are
assumed to be reinvested at the prices obtained under the Trust's dividend
reinvestment plan. Total investment return does not reflect sales charges or
brokerage commissions.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST III
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
High Income Advantage Trust III
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of High Income Advantage Trust III
(the "Trust") at January 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the four years in the
period then ended and for the period February 28, 1989 (commencement of
operations) through January 31, 1990, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at January 31, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE
New York, New York
March 4, 1994
<PAGE> 12
TRUSTEES
Jack F. Bennett
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse
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 III
Annual Report
January 31, 1994
