<PAGE> 1
HIGH INCOME ADVANTAGE TRUST III
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
--------------------------------------------------------------------------------
The fiscal year ended January 31, 1995 was disappointing for all
fixed-income markets, including the high-yield bond market, as questions
regarding the strength of the economy, inflation prospects, interest rate levels
and possible further Federal Reserve Board moves created a great deal of
uncertainty for the financial markets. High-yield investors, concerned over
rising interest rates and possible further tightening moves by the Federal
Reserve Board, remained nervous throughout most of the year, contributing to the
significant downturn in bond prices. In addition, a rather large amount of
new-issue supply in a year of weak demand also added to the market weakness.
This weakness was reflected in High Income Advantage Trust III's
fiscal-year performance. For the 12 months ended January 31, 1995, the Trust's
total return was -6.30 percent, based on its closing market value on the New
York Stock Exchange (NYSE) of $6.50 per share. Based on its net asset value
(NAV) of $6.12 per share on January 31, 1995, the Trust's total return for the
fiscal year was -9.68 percent.
As of January 31, 1995, the Trust had net assets in excess of $78 million.
Over the past 12 months, the Trust continued to distribute regular income
dividends at a rate of 0.06 per share per month. For the full fiscal year,
income dividends totaled approximately 0.767 per share, including an extra
income dividend of 0.047 per share paid on December 23, 1994.
INVESTMENT STRATEGY
The Trust entered 1994 positioned quite defensively as rising yields on
U.S. Treasury securities 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 increasingly difficult to find. In light of this, the Trust
positioned nearly half of its assets in very defensive, high-coupon,
short-duration issues; this structure served as a cushion during the market's
1994 first quarter decline.
During the second quarter of 1994, the Trust became a buyer as bond prices
receded to more attractive levels. At this point, despite the fact that
corporate credit quality in most cases remained strong, B-rated issues could be
purchased at 12 to 13 percent yield levels, versus the 10 percent levels that
existed earlier in the year and at significant discounts to par (face) value.
The Trust maintained its buying activity during the second half of 1994 with an
increased emphasis on discounted issues, which possess more upside opportunity
for the Trust when the high-yield market rebounds. While the Trust's portfolio,
overall, is positioned for a recovery in the high-yield market, it still retains
a sizeable exposure to various defensive securities, in order to provide the
flexibility needed to take advantage of any interim opportunities that may
arise.
MARKET OUTLOOK
Given our outlook for slower, albeit continued economic growth, we find
today's B-rated issues -- now yielding more than 600 basis points (6 percent)
above U.S. Treasury securities and trading at steep discounts -- offer excellent
long-term return potential. Over the near term, we expect continued volatility
<PAGE> 2
in the financial markets as investors assess the economy's strength, the future
direction of interest rates and possible Federal Reserve Board actions. However,
despite this potential short-term weakness, we consider today's high-yield
market to be an attractive long-term opportunity for investors. Current high-
yield issues provide an exceptionally attractive yield advantage over U.S.
Treasury securities, with the opportunity for substantial capital appreciation
if the high-yield market 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
--------------------------
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
HIGH INCOME ADVANTAGE TRUST III
PORTFOLIO OF INVESTMENTS January 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- ------- --------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (81.8%)
AEROSPACE (2.8%)
$ 2,500 Sabreliner Corp. (Series B)............................ 12.50 % 04/15/03 $ 2,250,000
------------
AIRLINES (3.8%)
4,000 GPA Delaware, Inc. .................................... 8.75 12/15/98 2,980,000
------------
AUTOMOTIVE (1.0%)
1,000 Envirotest Systems Corp. .............................. 9.625 04/01/03 765,000
------------
CABLE & TELECOMMUNICATIONS (1.3%)
2,000 Marcus Cable Co. ...................................... 13.50 ++ 08/01/04 1,060,000
------------
CHEMICALS (1.3%)
1,000 Georgia Gulf Corp. .................................... 15.00 04/15/00 1,013,750
------------
COMPUTER EQUIPMENT (2.7%)
2,000 Unisys Corp. .......................................... 13.50 07/01/97 2,145,000
------------
CONSUMER PRODUCTS (3.1%)
1,000 Icon Health & Fitness, Inc. (Units)**** - 144A**......... 13.00 07/15/02 1,012,500
1,000 J.B. Williams Holdings, Inc. .......................... 12.50 * 03/01/04 950,000
500 Thermoscan, Inc. (Units)**** - 144A**.................... 11.75 * 08/15/01 490,000
------------
2,452,500
------------
CONTAINERS (1.1%)
2,000 Ivex Holdings Corp. (Series B)......................... 13.25 ++ 03/15/05 840,000
------------
ELECTRICAL & ALARM SYSTEMS (1.9%)
2,000 Mosler, Inc. .......................................... 11.00 04/15/03 1,480,000
------------
ENTERTAINMENT/GAMING & LODGING (10.8%)
1,000 Fitzgeralds Gaming Corp. - 144A**...................... 13.50 * 03/15/96 551,250
2,000 Motels of America, Inc. ............................... 12.00 04/15/04 2,025,000
4,323 Spectravision, Inc. ................................... 11.65 + 12/01/02 729,506
2,000 Trump Castle Funding, Inc. ............................ 11.75 11/15/03 1,140,000
4,552 Trump Plaza Holding Assoc. ............................ 12.50 + 06/15/03 4,051,302
------------
8,497,058
------------
FOODS & BEVERAGES (5.3%)
2,000 Envirodyne Industries, Inc. ........................... 10.25 12/01/01 1,510,000
6,000 Specialty Foods Acquisition Corp. (Series B)........... 13.00 ++ 08/15/05 2,640,000
------------
4,150,000
------------
FOREST & PAPER PRODUCTS (2.6%)
2,000 Fort Howard Corp. ..................................... 14.125 11/01/04 2,015,000
------------
MANUFACTURING (6.0%)
2,000 Berry Plastics Corp. .................................. 12.25 04/15/04 1,940,000
2,000 MS Essex Holdings, Inc. ............................... 16.00 ++ 05/15/04 1,950,000
1,000 Uniroyal Technologies Corp. ........................... 11.75 06/01/03 820,000
------------
4,710,000
------------
MANUFACTURING - DIVERSIFIED (5.5%)
2,000 Interlake Corp. ....................................... 12.125 03/01/02 1,920,000
1,000 J.B. Poindexter, Inc. ................................. 12.50 05/15/04 940,000
1,000 Jordan Industries, Inc. ............................... 10.375 08/01/03 915,000
1,000 Jordan Industries, Inc. ............................... 11.75 ++ 08/01/05 532,500
------------
4,307,500
------------
</TABLE>
<PAGE> 4
HIGH INCOME ADVANTAGE TRUST III
PORTFOLIO OF INVESTMENTS January 31, 1995 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date Value
--------- ------- --------- ------------
<C> <S> <C> <C> <C>
OIL & GAS (6.4%)
$ 1,000 Deeptech International, Inc. .......................... 12.00 % 12/15/00 $ 920,000
2,000 Empire Gas Corp. (Units)++............................. 7.00 07/15/04 1,467,500
3,000 Presidio Oil Co. (Series B)............................ 13.675*** 07/15/02 2,640,000
3,275 TGX Corp. (c).......................................... 12.67 04/01/94 33
------------
5,027,533
------------
PUBLISHING (5.9%)
2,000 Affiliated Newspapers Inv., Inc. ...................... 13.25 ++ 07/01/06 985,000
1,900 BFP Holdings, Inc. (Series B).......................... 13.50 ++ 04/15/04 1,102,000
1,000 Garden State Newspapers, Inc. ......................... 12.00 07/01/04 970,000
1,875 U.S. Bancorp........................................... 10.375 06/01/02 1,565,625
------------
4,622,625
------------
RESTAURANTS (7.8%)
4,000 American Restaurant Group Holdings, Inc. .............. 14.00 ++ 12/15/05 1,920,000
2,000 Carrols Corp. ......................................... 11.50 08/15/03 1,845,000
3,000 Flagstar Corp. ........................................ 11.25 11/01/04 2,411,250
------------
6,176,250
------------
RETAIL (6.0%)
2,000 Cort Furniture Rental Corp. ........................... 12.00 09/01/00 1,890,000
1,000 County Seat Stores Co. ................................ 12.00 10/01/01 985,000
2,000 Thrifty Payless Holdings, Inc. ........................ 12.25 04/15/04 1,895,000
------------
4,770,000
------------
RETAIL - FOOD CHAINS (4.2%)
1,000 Food 4 Less Holdings, Inc. ............................ 15.25 ++ 12/15/04 770,000
10,000 Grand Union Capital Corp. (Series A) (c)............... 15.00 ++ 07/15/04 362,500
20,000 Grand Union Capital Corp. (Series A) (c)............... 0.00 01/15/07 175,000
2,500 Purity Supreme, Inc. (Series B)........................ 11.75 08/01/99 2,043,750
------------
3,351,250
------------
TEXTILES (2.3%)
2,517 JPS Textiles Group, Inc. .............................. 10.85 06/01/99 1,849,995
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $77,679,880)........................ 64,463,461
------------
CONVERTIBLE BONDS (1.3%)
RETAIL (1.3%)
1,000 Federated Department Stores, Inc. ..................... 6.00 ++ 02/15/04 980,000
------------
TEXTILES (0.0%)
57 Farley, Inc. .......................................... 0.00 01/01/12 5,788
------------
TOTAL CONVERTIBLE BONDS
(IDENTIFIED COST $984,424)........................... 985,788
------------
U.S. GOVERNMENT OBLIGATION (7.8%)
6,000 U.S. Treasury Note (Identified Cost $6,215,937)........ 12.625 05/15/95 6,111,563
------------
</TABLE>
<PAGE> 5
HIGH INCOME ADVANTAGE TRUST III
PORTFOLIO OF INVESTMENTS January 31, 1995 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Value
--------- ------------
<C> <S> <C>
COMMON STOCKS (a) (6.1%)
BUILDING & CONSTRUCTION (2.2%)
84,155 USG Corp. (b)................................................................... $ 1,756,736
------------
COMPUTER EQUIPMENT (0.0%)
95,553 Memorex Telex Corp. (ADR) (b)................................................... 65,693
------------
ENTERTAINMENT/GAMING & LODGING (0.3%)
2,000 Motels of America, Inc. - 144A**................................................ 190,000
22,350 Spectravision, Inc. (Class B)................................................... 9,778
------------
199,778
------------
FOODS & BEVERAGES (0.3%)
90,000 Specialty Foods Acquisition Corp. - 144A**...................................... 202,500
------------
MANUFACTURING - DIVERSIFIED (2.6%)
173,377 Thermadyne Holdings Corp. (b)................................................... 2,058,851
------------
PUBLISHING (0.4%)
2,000 Affiliated Newspapers Inv., Inc. (Class B)...................................... 50,000
15,200 BFP Holdings, Inc. - 144A** (Class D)........................................... 228,000
------------
278,000
------------
RESTAURANTS (0.1%)
4,000 American Restaurant Group Holdings, Inc. - 144A**............................... 88,000
------------
RETAIL (0.2%)
38,000 Thrifty Payless Holdings, Inc. (Class C)........................................ 171,000
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $9,158,561).................................................... 4,820,558
------------
<CAPTION>
Number of Expiration
Warrants Date
--------- ---------
<C> <S> <C> <C>
WARRANTS (a) (0.7%)
AEROSPACE (0.0%)
2,500 Sabreliner Corp. (b).............................................. 04/15/03 25,531
------------
CONTAINERS (0.1%)
2,000 Crown Packaging Holdings, Ltd. - 144A** (Canada).................. 10/15/03 110,000
------------
ENTERTAINMENT/GAMING & LODGING (0.2%)
3,263 Casino America, Inc. ............................................. 11/15/96 2,039
1,000 Fitzgeralds Gaming Corp. - 144A**................................. 03/15/99 20,000
200 Trump Plaza Holding Assoc. ....................................... 06/18/96 142,000
------------
164,039
------------
MANUFACTURING (0.1%)
2,000 BPC Holdings Corp. ............................................... 04/15/04 25,000
10,000 Uniroyal Technology Corp. ........................................ 06/01/03 15,000
------------
40,000
------------
OIL & GAS (0.0%)
2,760 Empire Gas Corp. ................................................. 07/15/04 27,600
------------
RETAIL (0.3%)
2,000 County Seat Holdings Co. ......................................... 10/15/98 50,000
66,000 New Cort Holdings Corp. .......................................... 09/01/98 165,000
------------
215,000
------------
</TABLE>
<PAGE> 6
HIGH INCOME ADVANTAGE TRUST III
PORTFOLIO OF INVESTMENTS January 31, 1995 (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Expiration
Warrants Date Value
--------- --------- ------------
<C> <S> <C> <C>
RETAIL - FOOD CHAINS (0.0%)
6,930 Purity Supreme, Inc. - 144A**..................................... 08/06/97 $ 347
------------
TOTAL WARRANTS
(IDENTIFIED COST $332,177)........................................ 582,517
------------
<CAPTION>
Principal
Amount
(in Coupon Maturity
thousands) Rate Date
--------- ------- ---------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (0.2%)
REPURCHASE AGREEMENT (0.2%)
$ 141 The Bank of New York (dated 01/31/95; proceeds
$140,967; collateralized by $140,736 U.S. Treasury
Note 8.25% due 07/15/98 valued at $144,384)
(Identified Cost $140,945)........................... 5.50% 02/01/95 140,945
------------
TOTAL INVESTMENTS
(IDENTIFIED COST $94,511,924)(d)................................ 97.9% 77,104,832
OTHER ASSETS IN EXCESS OF LIABILITIES............................. 2.1 1,659,803
----- ------------
NET ASSETS........................................................ 100.0% $ 78,764,635
====== ==========
</TABLE>
---------------
ADR American Depository Receipt.
* Adjustable rate. Rate shown is the rate in effect at January 31, 1995.
** 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, 1995.
**** Consists of more than one class of securities traded together as a unit;
generally bonds with attached stocks/warrants.
+ Payment-in-kind securities.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Non-income producing security.
(b) Acquired through exchange offer.
(c) Non-income producing, issuer in bankruptcy.
(d) The aggregate cost for federal income tax purposes is $94,538,084; the
aggregate gross unrealized appreciation is $1,046,646; and the aggregate
gross unrealized depreciation is $18,479,898, resulting in net unrealized
depreciation of $17,433,252.
See Notes to Financial Statements
<PAGE> 7
HIGH INCOME ADVANTAGE TRUST III
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1995
-----------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $94,511,924).......... $ 77,104,832
Interest receivable...................... 1,776,685
Prepaid expenses and other assets........ 2,260
-------------
TOTAL ASSETS..................... 78,883,777
-------------
LIABILITIES:
Investment management fee payable........ 51,800
Accrued expenses and other payables...... 67,342
-------------
TOTAL LIABILITIES................ 119,142
-------------
NET ASSETS:
Paid-in-capital.......................... 121,076,287
Net unrealized depreciation.............. (17,407,092)
Accumulated undistributed net investment
income................................. 675,372
Accumulated net realized loss............ (25,579,932)
-------------
NET ASSETS....................... $ 78,764,635
=============
NET ASSET VALUE PER SHARE,
12,876,779 shares outstanding
(unlimited shares authorized of $.01
par value)............................. $6.12
=====
STATEMENT OF OPERATIONS For the year ended January 31,
1995
-----------------------------------------
INVESTMENT INCOME:
INTEREST INCOME........................ $ 10,504,487
-------------
EXPENSES
Investment management fee............ 653,507
Professional fees.................... 70,166
Transfer agent fees and expenses..... 57,999
Custodian fees....................... 25,623
Shareholder reports and notices...... 25,583
Trustees' fees and expenses.......... 23,324
Registration fees.................... 22,338
Organizational expenses.............. 786
Other................................ 9,800
-------------
TOTAL EXPENSES..................... 889,126
-------------
NET INVESTMENT INCOME............ 9,615,361
-------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss...................... (12,646,621)
Net change in unrealized
depreciation......................... (5,793,370)
-------------
TOTAL LOSS........................... (18,439,991)
-------------
NET DECREASE..................... $ (8,824,630)
=============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
January 31, 1995 January 31, 1994
----------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income...................................................... $ 9,615,361 $ 10,448,403
Net realized loss.......................................................... (12,646,621) (2,451,938)
Net change in unrealized depreciation...................................... (5,793,370) 14,076,160
----------------- ----------------
Net increase (decrease)................................................ (8,824,630) 22,072,625
Dividends to shareholders from net investment income......................... (9,876,489) (10,911,783)
----------------- ----------------
Total increase (decrease).............................................. (18,701,119) 11,160,842
NET ASSETS:
Beginning of period.......................................................... 97,465,754 86,304,912
----------------- ----------------
END OF PERIOD (including undistributed net investment income of $675,372 and
$936,500, respectively).................................................... $ 78,764,635 $ 97,465,754
================= ================
</TABLE>
See Notes to Financial Statements
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- High Income Advantage Trust III (the
"Trust") is registered under the Investment Company Act of 1940, as amended, as
a diversified, closed-end management investment company. The Trust was organized
as a Massachusetts business trust on 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 valued by such pricing service; and (5) short-term debt
securities having a maturity date of more than sixty days at the time of
purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. Accounting for Investments -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Discounts on securities purchased are amortized over the life of
the respective securities. The Fund does not amortize premiums on
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.
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
E. Organizational Expenses -- Dean Witter InterCapital Inc. (the
"Investment Manager") paid the organizational expenses of the Trust in the
amount of approximately $53,000. The Trust reimbursed the Investment
Manager for such expenses which were fully amortized as of February 28,
1994.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement, the Trust pays its Investment Manager a management fee, calculated
weekly and payable monthly, by applying the following annual rate of the Trust's
average weekly net assets: 0.75% to 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 year ended January 31, 1995 aggregated $64,919,401 and
$67,188,913, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At January 31, 1995, the Trust had transfer agent fees
and expenses payable of approximately $7,000.
4. SHARES OF BENEFICIAL INTEREST -- No transactions in shares of beneficial
interest occurred.
<TABLE>
<CAPTION>
Capital Paid
in
Par Value Excess of Par
Shares of Shares Value
------------ --------- -------------
<S> <C> <C> <C>
Balance, January 31, 1994 and 1995................ $ 12,876,779 $ 128,768 $ 120,947,519
============ ========= =============
</TABLE>
5. DIVIDENDS -- The Trust has declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
Amount
Declaration Date per Share Record Date Payable Date
---------------------------------------- --------- ------------------ ------------------
<S> <C> <C> <C>
January 31, 1995........................ $0.06 February 10, 1995 February 24, 1995
February 28, 1995....................... $0.06 March 10, 1995 March 24, 1995
</TABLE>
6. FEDERAL INCOME TAX STATUS -- At January 31, 1995, 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 2003 Total
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
$9,648,000 $3,256,000 $10,665,000 $23,569,000
========== ========== ============ ============
</TABLE>
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. Capital losses incurred after October 31 ("post-October losses")
within the taxable year are deemed to arise on the first business day of the
Trust's next taxable year. The Trust incurred and will elect to defer net
capital losses of approximately $1,985,000 during fiscal 1995. As of January 31,
1995, the Trust had temporary book/tax differences primarily attributable to
post-October losses.
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
7. SELECTED QUARTERLY FINANCIAL DATA -- (unaudited)
<TABLE>
<CAPTION>
Quarters Ended*
-------------------------------------------------------------------------------------
1/31/95 10/31/94 7/31/94 4/30/94
------------------- ------------------- ------------------- -------------------
Total Per Share Total Per Share Total Per Share Total Per Share
------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income..... $2,522 $.20 $2,698 $.21 $2,675 $.21 $2,609 $.20
Net investment income....... 2,299 .18 2,492 .19 2,451 .19 2,373 .19
Net realized and unrealized
loss on investment........ (2,635) (.20) (4,587) (.36) (6,559) (.51) (4,659) (.36)
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
-------------------------------------------------------------------------------------
1/31/94 10/31/93 7/31/93 4/30/93
------------------- ------------------- ------------------- -------------------
Total Per Share Total Per Share Total Per Share Total Per 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
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
For the year ended January 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <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
-------- -------- -------- -------- --------
Net investment income........................ 0.75 0.81 0.91 0.84 1.11
Net realized and unrealized gain (loss)
on investments............................. (1.43) 0.91 (0.13) 1.58 (2.37)
-------- -------- -------- -------- --------
Total from investment operations............. (0.68) 1.72 0.78 2.42 (1.26)
Less dividends from net investment income.... (0.77) (0.85) (0.91) (0.77) (1.15)
-------- -------- -------- -------- --------
Net asset value, end of period............... $ 6.12 $ 7.57 $ 6.70 $ 6.83 $ 5.18
======= ======= ======= ======= =======
Market value, end of period.................. $ 6.50 $ 7.75 $ 6.875 $ 6.50 $ 4.625
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN+..................... (6.30)% 26.21% 20.77% 60.31% (24.31)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $ 78,765 $ 97,466 $ 86,305 $ 89,084 $ 68,476
Ratios to average net assets:
Expenses................................... 1.02% 0.99% 1.06% 1.17% 1.05%
Net investment income...................... 11.04% 11.40% 13.22% 13.53% 17.39%
Portfolio turnover rate...................... 82% 231% 118% 137% 44%
</TABLE>
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+ 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.
See Notes to Financial Statements
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST III
REPORT OF INDEPENDENT ACCOUNTANTS
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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, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
January 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
March 13, 1995
<PAGE> 12
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
HIGH INCOME
ADVANTAGE
TRUST III
ANNUAL REPORT
JANUARY 31, 1995
