<PAGE> 1
HIGH INCOME ADVANTAGE TRUST III
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
The first half of 1994 was disappointing for all fixed-income markets,
including the high-yield market. Questions concerning the strength of the
economy, inflation prospects, interest rate levels and possible Federal Reserve
Board moves created an uncomfortable level of uncertainty for the financial
markets. High-yield investors, worried about rising interest rates and possible
further tightening actions by the Federal Reserve Board, were not immune to the
fixed-income market's volatility.
The high-yield bond market's weak first half was reflected in High Income
Advantage Trust III's performance. For the six-month period ended July 31, 1994,
the Trust's total return was -6.84 percent, based on a closing market price on
the New York Stock Exchange (NYSE) of $6.875 per share. Based on its net asset
value (NAV) of $6.71 per share on July 31, 1994, the Trust's total return for
the six-month period was -6.91 percent. For the trailing twelve-month period
ended July 31, 1994, the Trust's total return was -2.32 percent, based on the
closing NYSE market price per share quoted above and 4.86 percent, based on the
NAV quoted above.
As of July 31, 1994, the Trust's net assets exceeded $86 million. Over the
past six months, the Trust continued to distribute regular income dividends at a
rate of $0.060 per share per month. For the six-month period, income dividends
totaled $0.36 per share.
INVESTMENT STRATEGY
The Trust began 1994 positioned defensively. Rising U.S. Treasury security
yields had begun to reduce the relative attractiveness of high-yield securities,
narrowing their yield advantage. In addition, given the high-yield market's
strength early in the year, attractively priced discount issues were becoming
more difficult to find. In light of this, the Trust positioned nearly half of
its assets in very defensive, high coupon, short duration paper, which helped to
cushion the Trust during the market's first quarter decline.
The Trust became a buyer during the early part of the second quarter, as a
correction pushed the market back to more attractive levels. Despite the fact
that corporate credit quality in most cases remained strong, B-rated issues
could then be purchased at 12 percent to 13 percent yield levels, versus the 10
percent levels that existed earlier in the year and at significant discounts to
par (face) value. As of the end of the reporting period, the high-yield market,
as well as the bond market in general, remained weak.
MARKET OUTLOOK
Given our outlook for slower, but continued growth in the economy, we find
today's B-rated issues (now yielding more than 600 basis points, six percent,
over U.S. Treasuries and trading at steep discounts) offer excellent long-term
return potential. Over the near term, we expect continued volatility in the
financial markets as investors attempt to assess the economy's strength, the
level of interest rates and possible Federal Reserve Board actions. However,
despite this possible short-term weakness, we
<PAGE> 2
consider today's high-yield market to be an attractive long-term opportunity for
investors. Current issues provide an exceptionally large yield advantage over
U.S. Treasury securities, with the opportunity for substantial capital
appreciation if the high-yield market rebounds.
We would like to remind you that the Trustees have approved a procedure
whereby the Trust, when appropriate, may repurchase shares in the open market or
in privately negotiated transactions at a price not above market value or net
asset value, whichever is lower at the time of purchase.
We thank you for your continued support of High Income Advantage Trust 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 July 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ----------- ------ -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (86.7%)
AEROSPACE (2.8%)
$ 2,500 Sabreliner Corp. (Series B).................................. 12.50 % 4/15/03 $ 2,400,000
------------
AIRLINES (3.8%)
4,000 GPA Delaware, Inc............................................ 8.75 12/15/98 3,320,000
------------
AUTOMOTIVE (3.4%)
1,000 Doehler-Jarvis, Inc. ........................................ 11.875 6/ 1/02 997,500
1,000 Envirotest Systems Corp. .................................... 9.625 4/ 1/03 947,500
1,000 Harvard Industries, Inc. .................................... 12.00 7/15/04 1,005,000
------------
2,950,000
------------
CABLE & TELECOMMUNICATIONS (1.1%)
1,000 Marcus Cable Co. ............................................ 11.875 10/ 1/05 922,500
------------
COMPUTER EQUIPMENT (3.8%)
3,000 Unisys Corp. ................................................ 13.50 * 7/ 1/97 3,262,500
------------
CONSUMER PRODUCTS (2.0%)
1,000 J.B. Williams Holdings, Inc. - 144A**........................ 12.50 * 3/ 1/04 972,500
2,000 Revlon Worldwide Corp. (Series B)............................ 0.00 3/15/98 770,000
------------
1,742,500
------------
CONTAINERS (1.1%)
2,000 Ivex Holdings Corp. (Series B)............................... 13.25 ++ 3/15/05 1,000,000
------------
ELECTRICAL & ALARM SYSTEMS (1.5%)
2,000 Mosler, Inc. ................................................ 11.00 4/15/03 1,310,000
------------
ENTERTAINMENT, GAMING & LODGING (17.4%)
1,000 Belle Casino, Inc. - 144A**.................................. 12.00 10/15/00 500,000
3,000 Fair Lanes, Inc.(b).......................................... 11.875 8/15/97 2,176,890
1,000 Fitzgeralds Gaming Corp. - 144A**............................ 13.00 * 3/15/96 900,000
2,000 Hollywood Casino Corp. ...................................... 14.00 4/ 1/98 2,160,000
2,000 Motels of America, Inc. - 144A**............................. 12.00 4/15/04 1,930,000
3,126 Spectravision, Inc. ......................................... 11.65 + 12/ 1/02 1,563,000
2,000 Treasure Bay Gaming & Resort, Inc. - 144A**.................. 12.25 11/15/00 1,740,000
2,000 Trump Castle Funding, Inc. .................................. 11.75 11/15/03 1,340,000
3,814 Trump Plaza Holding Assoc. .................................. 12.50 + 6/15/03 2,707,706
------------
15,017,596
------------
FOOD & BEVERAGES (3.2%)
1,000 Envirodyne Industries, Inc. ................................. 10.25 12/ 1/01 865,000
5,000 Specialty Foods Acquisition Corp. (Series B)................. 13.00 ++ 8/15/05 1,900,000
------------
2,765,000
------------
HOME BUILDING (1.1%)
1,000 Presley Cos., Inc. .......................................... 12.50 7/ 1/01 985,000
------------
MANUFACTURING (6.7%)
2,000 Berry Plastics Corp. (Units)................................. 12.25 4/15/04 2,060,000
3,000 MS Essex Holdings, Inc. ..................................... 16.00 ++ 5/15/04 2,760,000
1,000 Uniroyal Technology Corp. ................................... 11.75 6/ 1/03 962,500
------------
5,782,500
------------
MANUFACTURING -- DIVERSIFIED (3.3%)
2,000 Interlake Corp. ............................................. 12.125 3/ 1/02 1,910,000
1,000 J.B. Poindexter, Inc. ....................................... 12.50 5/15/04 985,000
------------
2,895,000
------------
</TABLE>
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST III
PORTFOLIO OF INVESTMENTS July 31, 1994 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ----------- ------ -------- ------------
<C> <S> <C> <C> <C>
OIL & GAS (6.5%)
$ 1,000 Deeptech International, Inc. ................................ 12.00 % 12/15/00 $ 995,000
2,000 Empire Gas Corp. (Units)..................................... 7.00 ++ 7/15/04 1,570,000
3,000 Presidio Oil Co. (Series B).................................. 14.125*** 7/15/02 3,030,000
3,275 TGX Corp.(b)................................................. 12.67 4/ 1/94 33
------------
5,595,033
------------
PAPER & FOREST PRODUCTS (2.3%)
2,000 Fort Howard Corp. ........................................... 14.125++ 11/ 1/04 1,950,000
------------
PUBLISHING (3.5%)
2,000 Affiliated Newspapers Inv., Inc. ............................ 13.25 ++ 7/ 1/06 1,040,000
1,900 BFP Holdings, Inc. - 144A**.................................. 13.50 ++ 4/15/04 954,750
1,000 Garden State Newspapers, Inc. ............................... 12.00 7/ 1/04 997,500
------------
2,992,250
------------
RESTAURANTS (7.4%)
4,000 American Restaurant Group Holdings, Inc. .................... 14.00 ++ 12/15/05 1,960,000
2,000 Carrols Corp. ............................................... 11.50 8/15/03 1,890,000
3,000 Flagstar Corp. .............................................. 11.25 11/ 1/04 2,587,500
------------
6,437,500
------------
RETAIL (6.9%)
2,000 Cort Furniture Rental Corp. ................................. 12.00 9/ 1/00 1,980,000
2,000 County Seat Stores, Co. ..................................... 12.00 10/ 1/01 1,980,000
2,000 Thrifty Payless Holdings, Inc. .............................. 12.25 4/15/04 2,025,000
------------
5,985,000
------------
RETAIL -- FOOD CHAINS (4.6%)
1,000 Food 4 Less Holdings, Inc. .................................. 15.25 ++ 12/15/04 720,000
18,000 Grand Union Capital Corp. (Series A)......................... 0.00 1/15/07 1,350,000
2,000 Purity Supreme, Inc. (Series B).............................. 11.75 8/ 1/99 1,890,000
------------
3,960,000
------------
TEXTILES -- APPAREL MANUFACTURERS (3.1%)
57 Farley, Inc. (Conv.)......................................... 0.00 1/ 1/12 5,405
3,000 JPS Textiles Group, Inc. .................................... 10.85 6/ 1/99 2,700,000
------------
2,705,405
------------
TRANSPORTATION (1.2%)
1,000 Trans Ocean Container Corp. ................................. 12.25 7/ 1/04 1,010,000
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $84,312,092)....................................................... 74,987,784
------------
U.S. GOVERNMENT OBLIGATIONS (3.5%)
3,000 U.S. Treasury Note (Identified Cost $3,061,875).............. 12.625 8/15/94 3,008,906
------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares
- -----------
<C> <S> <C>
COMMON STOCKS(A) (5.7%)
BUILDING & CONSTRUCTION (2.1%)
84,155 USG Corp.(c)............................................................................. 1,767,255
-------------
COMPUTER EQUIPMENT (0.4%)
95,553 Memorex Telex Corp. (ADR)(c)............................................................. 355,342
-------------
CONSUMER PRODUCTS (0.5%)
322,191 Triton Group, Ltd.(c) ................................................................... 422,876
-------------
</TABLE>
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST III
PORTFOLIO OF INVESTMENTS July 31, 1994 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares
- -----------
<C> <S> <C>
ENTERTAINMENT, GAMING & LODGING (0.2%)
2,000 Motels of America, Inc. - 144A**......................................................... $ 140,000
22,350 Spectravision, Inc. (Class B)............................................................ 44,700
-------------
184,700
-------------
FOOD & BEVERAGE (0.1%)
60,000 Specialty Foods Acquisition Corp. - 144A**............................................... 60,000
-------------
MANUFACTURING -- DIVERSIFIED (2.0%)
173,377 Thermadyne Holdings Corp.(c)............................................................. 1,733,770
-------------
PUBLISHING (0.2%)
2,000 Affiliated Newspapers Inv., Inc. ........................................................ 50,000
15,200 BFP Holdings, Inc. - 144A**.............................................................. 129,200
-------------
179,200
-------------
RESTAURANT (0.1%)
4,000 American Restaurant Group Holdings, Inc. - 144A**........................................ 84,000
-------------
RETAIL (0.1%)
38,000 Thrifty Payless Holdings, Inc. (Class C)................................................. 114,000
-------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $12,826,345)............................................................ 4,901,143
-------------
</TABLE>
<TABLE>
<CAPTION>
Number of Expiration
Warrants Date
- ----------- ----------
<C> <S> <C> <C>
WARRANTS(A) (1.0%)
AEROSPACE (0.1%)
2,500 Sabreliner Corp. ............................................................ 4/15/03 45,000
--------------
BUILDING & CONSTRUCTION (0.3%)
21,496 USG Corp.(c)................................................................. 5/ 5/98 241,830
--------------
CONTAINERS (0.1%)
2,000 Crown Packaging Holdings, Ltd. - 144A**...................................... 10/15/03 90,000
--------------
ENTERTAINMENT, GAMING & LODGING (0.4%)
1,000 Belle Casino, Inc. - 144A**.................................................. 10/15/03 70,000
3,263 Casino America, Inc. ........................................................ 11/15/96 3,263
1,000 Fitzgeralds Gaming Corp. - 144A**............................................ 3/15/99 65,000
10,000 Treasury Bay Gaming & Resorts, Inc. - 144A**................................. 11/15/98 60,000
200 Trump Plaza Holding Assoc. .................................................. 6/18/96 140,000
--------------
338,263
--------------
MANUFACTURING (0.0%)
10,000 Uniroyal Technology Corp. ................................................... 6/ 1/03 27,500
--------------
RETAIL (0.1%)
2,000 County Seat Holdings Co. .................................................... 10/15/98 26,000
66,000 New Cort Holdings Corp. ..................................................... 9/ 1/98 99,531
--------------
125,531
--------------
RETAIL -- FOOD CHAIN (0.0%)
6,930 Purity Supreme, Inc. - 144A**................................................ 8/ 6/97 347
--------------
TOTAL WARRANTS
(IDENTIFIED COST $571,510).............................................................. 868,471
--------------
</TABLE>
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST III
PORTFOLIO OF INVESTMENTS July 31, 1994 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount(in
Thousands) Value
- ----------- -----------
<C> <S> <C> <C>
REPURCHASE AGREEMENT (0.6%)
504 The Bank of New York 4.125% due 8/1/94 (dated 7/29/94; proceeds $504,499;
collateralized by $519,532 Federal National Mortgage Association 5.85% due
2/2/98 valued at $514,413) (Identified cost $504,326)....................... $ 504,326
-----------
TOTAL INVESTMENTS
(IDENTIFIED COST $101,276,148)(D)............................................. 97.5% 84,270,630
OTHER ASSETS IN EXCESS OF LIABILITIES......................................... 2.5 2,165,209
---------- -----------
NET ASSETS.................................................................... 100.0% $86,435,839
========= ===========
</TABLE>
- ---------------
ADR -- American Depository Receipt.
* Adjustable rate. Rate shown is the rate in effect at July 31, 1994.
** Resale is restricted to qualified institutional investors.
*** Base interest rate is 13.25%, additional interest, if any, is linked to the
Gas Index. Rate shown is the rate in effect at July 31, 1994.
+ Payment in kind securities.
++ Currently zero coupon bond and will pay interest at the rate shown at a
future specified date.
(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 $101,305,798; the
aggregate gross unrealized appreciation is $1,546,246 and the aggregate
gross unrealized depreciation is $18,581,414, resulting in net unrealized
depreciation of $17,035,168.
See Notes to Financial Statements
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST III
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1994 (unaudited)
- -------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $101,276,148)........... $ 84,270,630
Receivable for:
Interest................................. 1,957,567
Investments sold......................... 305,347
Prepaid expenses........................... 13,652
------------
TOTAL ASSETS....................... 86,547,196
------------
LIABILITIES:
Investment management fee payable (Note
2)....................................... 66,715
Accrued expenses (Note 3).................. 44,642
------------
TOTAL LIABILITIES.................. 111,357
------------
NET ASSETS:
Paid-in-capital............................ 121,076,287
Accumulated net realized loss on
investments.............................. (18,759,939)
Net unrealized depreciation on
investments.............................. (17,005,518)
Accumulated undistributed net investment
income................................... 1,125,009
------------
NET ASSETS......................... $86,435,839
=============
NET ASSET VALUE PER SHARE,
12,876,779 shares outstanding (unlimited
authorized shares of $.01 par value)..... $6.71
-----
-----
STATEMENT OF OPERATIONS For the six months
ended July 31, 1994 (unaudited)
- -------------------------------------------
INVESTMENT INCOME:
INTEREST INCOME........................... $ 5,284,630
------------
EXPENSES
Investment management fee (Note 2)....... 345,707
Transfer agent fees and expenses (Note
3)..................................... 33,627
Professional fees........................ 31,440
Trustees' fees and expenses.............. 11,622
Custodian fees........................... 12,778
Registration fees........................ 11,729
Shareholder reports and notices (Note
3)..................................... 5,946
Organizational expenses (Note 1)......... 786
Other.................................... 6,847
------------
TOTAL EXPENSES......................... 460,482
------------
NET INVESTMENT INCOME................ 4,824,148
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 1):
Net realized loss on investments......... (5,826,628)
Net change in unrealized depreciation on
investments............................ (5,391,796)
------------
NET LOSS ON INVESTMENTS................ (11,218,424)
------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS.......... $ (6,394,276)
=============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six
months ended For the
July 31, 1994 year ended
(unaudited) January 31, 1994
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................................ $ 4,824,148 $ 10,448,403
Net realized loss on investments..................................... (5,826,628) (2,451,938)
Net change in unrealized depreciation on investments................. (5,391,796) 14,076,160
------------------- -------------------
Net increase (decrease) in net assets resulting from
operations..................................................... (6,394,276) 22,072,625
Dividends to shareholders from net investment income................... (4,635,639) (10,911,783)
------------------- -------------------
Total increase (decrease)........................................ (11,029,915) 11,160,842
NET ASSETS:
Beginning of period.................................................... 97,465,754 86,304,912
------------------- -------------------
END OF PERIOD (including undistributed net investment income of
$1,125,009 and $936,500, respectively)................................ $ 86,435,839 $ 97,465,754
=================== ===================
</TABLE>
See Notes to Financial Statements
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- High Income Advantage Trust III (the
"Trust") is registered under the Investment Company Act of 1940, as amended, as
diversified, closed-end management investment company. The Trust was organized
as a Massachusetts business trust on November 23, 1988 and commenced operations
on February 28, 1989.
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, in
determining what it believes is the fair valuation of the portfolio
securities value by such pricing service; and (5) short-term debt
securities having a maturity date of more than sixty days are valued on a
mark-to-market basis, that is, at prices based on market quotations for
securities of a similar type, yield, quality and maturity, until sixty days
prior to maturity and thereafter at amortized cost. 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 on the identified cost
method. In computing net investment income, the Trust does not amortize
premiums or accrue discounts on fixed income securities, except those
original issue discounts for which amortization is required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date.
Interest income is accrued daily except where collection is not expected.
C. 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.
D. Federal Income Tax Status -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
E. 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" 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.
F. 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 expenses which were fully
amortized as of February 28, 1994.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Trust pays the Investment Manager a monthly management fee, calculated weekly,
by applying the following annual rates to the Trust's average weekly net assets:
0.75% of the portion of average weekly net assets not exceeding $250 million;
0.60% to the portion of average weekly net assets exceeding $250 million but not
exceeding $500 million; 0.50% to the portion of average weekly net assets
exceeding $500 million but not exceeding $750 million; 0.40% to the portion of
average weekly net assets exceeding $750 million but not exceeding $1 billion;
and 0.30% to the portion of average weekly net assets exceeding $1 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's 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.
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 July 31, 1994 aggregated $57,106,473 and
$57,939,110, respectively, including purchases and sales of U.S. Government
securities of $3,061,875 and $6,117,188, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At July 31, 1994, the Trust had transfer agent fees and
expenses payable of approximately $13,000.
Bowne & Co., Inc. is an affiliate of the Trust by virtue of a common
Trustee and Director of Bowne & Co., Inc. During the six months ended July 31,
1994, the Trust paid Bowne & Co., Inc. $8,258 for printing of shareholder
reports.
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
4. SHARES OF BENEFICIAL INTEREST -- No transactions in shares of beneficial
interest occurred.
<TABLE>
<CAPTION>
Par Capital Paid
Value of in Excess of
Shares Shares Par Value
---------- -------- ------------
<S> <C> <C> <C>
Balance, January 31, 1993 and 1994
and July 31, 1994................................ 12,876,779 $128,768 $120,947,519
========== ========= =============
</TABLE>
5. DIVIDENDS -- The Trust declared the following dividends from net investment
income --
<TABLE>
<CAPTION>
Declaration Amount Record Payable
Date per Share Date Date
- ------------------------------------------------------------ --------- ------ -------
<S> <C> <C> <C>
July 26, 1994............................................... $ .06 8/5/94 8/19/94
August 30, 1994............................................. $ .06 9/9/94 9/23/94
</TABLE>
6. FEDERAL INCOME TAX STATUS -- At January 31, 1994, the Trust had approximate
net capital loss carryovers which may be used to offset future capital gains to
the extent provided by regulations as follows:
<TABLE>
<CAPTION>
Available through January 31,
-----------------------------------------
2000 2002 Total
---------- ---------- -----------
<S> <C> <C>
$9,648,000 $3,256,000 $12,904,000
========== ========== ============
</TABLE>
7. SELECTED QUARTERLY FINANCIAL DATA --
<TABLE>
<CAPTION>
Quarters Ended*
---------------------------------
7/31/94 4/30/94
--------------- ---------------
Per Per
Total Share Total Share
------- ----- ------- -----
<S> <C> <C> <C> <C>
Total investment income.................................... $ 2,675 $ .21 $ 2,610 $ .20
Net investment income...................................... 2,451 .19 2,373 .18
Net realized and unrealized loss on investments............ (6,559) (.51) (4,659) (.36)
</TABLE>
<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
Net investment income.......... 2,595 .20 2,493 .19 3,119 .24 2,241 .18
Net realized and unrealized
gain on investments.......... 4,582 .36 1,839 .15 2,545 .20 2,658 .20
</TABLE>
- ---------------
* Totals expressed in thousands
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST III
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 period
months ended For the year ended January 31, February 28, 1989*
July 31, 1994 ------------------------------------------- through
(unaudited) 1994 1993 1992 1991 January 31, 1990
------------- ------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $ 7.57 $ 6.70 $ 6.83 $ 5.18 $ 7.59 $ 9.30
------------- ------- ------- ------- ------- ----------
Net investment income............ 0.37 0.81 0.91 0.84 1.11 1.02
Net realized and unrealized gain
(loss) on investments.......... (0.87) 0.91 (0.13) 1.58 (2.37) (1.75)
------------- ------- ------- ------- ------- ----------
Total from investment operations... (0.50) 1.72 0.78 2.42 (1.26) (0.73)
------------- ------- ------- ------- ------- ----------
Less dividends and other charges:
Dividends from net investment
income......................... (0.36) (0.85) (0.91) (0.77) (1.15) (0.95)
Offering costs charged against
capital........................ -0- -0- -0- -0- -0- (0.03)
------------- ------- ------- ------- ------- ----------
Total dividends and other
charges.......................... (0.36) (0.85) (0.91) (0.77) (1.15) (0.98)
------------- ------- ------- ------- ------- ----------
Net asset value, end of period..... $ 6.71 $ 7.57 $ 6.70 $ 6.83 $ 5.18 $ 7.59
============= ======== ======== ======== ======== ==================
Market value, end of period........ $ 6.875 $ 7.75 $ 6.875 $ 6.50 $ 4.625 $ 7.375
============= ======== ======== ======== ======== ==================
TOTAL INVESTMENT RETURN+............. (6.84)%(1) 26.21% 20.77% 60.31% (24.31)% (17.65)%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)....................... $86,436 $97,466 $86,305 $89,084 $68,476 $101,102
Ratio of expenses to average net
assets........................... 1.00%(2) 0.99% 1.06% 1.17% 1.05% 0.93%(2)
Ratio of net investment income to
average net assets............... 10.47%(2) 11.40% 13.22% 13.53% 17.39% 12.65%(2)
Portfolio turnover rate............ 64% 231% 118% 137% 44% 59%
</TABLE>
- ---------------
* Commencement of operations.
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends and distributions are assumed to be
reinvested at the prices obtained under the Trust's dividend reinvestment
plan. Total investment return does not reflect sales charges or brokerage
commissions.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
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 opinion thereon.
<PAGE> 12
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
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 LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
High
Income
Advantage
Trust III
Semiannual Report
July 31, 1994
