<PAGE> 1
HIGH INCOME ADVANTAGE TRUST III Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS January 31, 1996
DEAR SHAREHOLDER:
The fixed-income markets rebounded sharply during 1995,
as economic growth slowed and inflation fears subsided.
The high-yield market recorded a strong year,
benefiting from the rally in the U.S. Treasury market,
as well as from the continued strength in corporate
earnings. However, as is typical in a decelerating
economic environment, the high-yield bond market lagged
the U.S. Treasuries rally, as concerns over the
severity of the economic slowdown offset some of the
benefit of lower interest rates.
For the twelve-month period ended January 31, 1996,
High Income Advantage Trust III produced a total return
of 15.31 percent, based on its closing market price on
the New York Stock Exchange (NYSE) of $6.75 per share.
Based on its net asset value (NAV) of $6.39 per share
on January 31, 1996, the Trust's total return for the
twelve-month period was 15.94 percent. As of January
31, 1996, the Trust had net assets in excess of $82
million. Over the past twelve months, the Trust
continued to distribute regular income dividends at a
rate of $.06 per share per month. For the full fiscal
year, income dividends totaled $.72 per share.
INVESTMENT STRATEGY
The Trust's investment strategy throughout 1995 was to
capitalize on the opportunity created by the 1994
market correction by positioning the Trust for an
eventual rebound in the market. Despite the fact that
corporate credit quality remained strong, the 1994
market correction pushed yields on many B-rated issues
300-400 basis points higher (to the 13-14 percent
range) and caused bond prices in some cases to decline
by as much as 15-20 percent. In light of this
correction, the Trust increased its emphasis on
discounted issues during the second half of 1994, which
helped to provide more capital appreciation potential
for the Trust. While the Trust's portfolio is still
positioned for further upside in the high yield market,
it continues to maintain a sizable position in various
defensive securities, in order to provide the
flexibility needed to take advantage of any interim
opportunities that may arise.
<PAGE> 2
HIGH INCOME ADVANTAGE TRUST III
LETTER TO THE SHAREHOLDERS January 31, 1996, continued
MARKET OUTLOOK
Given our outlook for continued, albeit slower economic growth, we find that
many of today's B-rated issues -- still yielding more than 600 basis points (6
percent) above U.S. Treasury securities and trading at significant
discounts -- offer excellent long-term return potential. Over the near term, we
expect continued volatility in the financial markets as investors assess the
economy's strength, possible Federal Reserve Board actions and ongoing budget
negotiations in Washington. However, despite any potential short-term weakness,
we consider today's high-yield market to be an attractive long-term opportunity
for investors. Many current high-yield issues provide an exceptionally
attractive yield advantage over U.S. Treasury securities, with the opportunity
for substantial capital appreciation if the high-yield market continues its
recovery.
We would like to remind you that the Trustees have approved a procedure whereby
the Trust, when appropriate, may purchase shares in the open market or in
privately negotiated transactions at a price not above market value or net
asset value, whichever is lower at the time of purchase.
We appreciate your support of High Income Advantage Trust III and look forward
to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 3
HIGH INCOME ADVANTAGE III
PORTFOLIO OF INVESTMENTS January 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (93.1%)
Aerospace (2.9%)
$ 2,500 Sabreliner Corp. (Series B)........... 12.50 % 04/15/03 $ 2,368,750
----------
Airlines (4.4%)
3,850 GPA Delaware, Inc. ................... 8.75 12/15/98 3,667,125
---------
Automotive (3.6%)
400 APS, Inc. - 144A*..................... 11.875 01/15/06 414,500
3,250 Envirotest Systems, Inc. ............. 9.625 04/01/03 2,567,500
----------
2,982,000
----------
Cable & Telecommunications (9.7%)
2,048 Adelphia Communications Corp. (Series B) 9.50+ 02/15/04 1,689,980
2,000 AT&T Capital Corp. ................... 15.00 05/05/97 2,230,400
6,500 In-Flight Phone Corp. (Series B)...... 14.00++ 05/15/02 2,015,000
1,000 Paxson Communications - 144A*......... 11.625 10/01/02 1,050,000
1,000 Rifkin Acquisition Partners
L.P. - 144A*......................... 11.125 01/15/06 1,017,500
----------
8,002,880
----------
Computer Equipment (8.0%)
3,000 IBM Credit Corp. ..................... 15.00 06/13/96 3,098,880
3,400 Unisys Corp. ......................... 13.50 07/01/97 3,502,000
----------
6,600,880
----------
Consumer Products (1.2%)
1,000 J.B. Williams Holdings, Inc. ......... 12.00 03/01/04 1,007,500
----------
Containers (2.0%)
2,750 Ivex Holdings Corp. (Series B)........ 13.25++ 03/15/05 1,677,500
----------
Electrical & Alarm Systems (2.2%)
2,250 Mosler, Inc. ......................... 11.00 04/15/03 1,777,500
----------
Entertainment/Gaming & Lodging (5.3%)
2,000 Motels of America, Inc. (Series B).... 12.00 04/15/04 1,990,000
750 Plitt Theaters, Inc. ................. 10.875 06/15/04 697,500
6,722 Spectravision, Inc. (c)............... 11.65 12/01/02 658,741
1,000 Trump Taj Mahal (Series A)............ 11.35+ 11/15/99 995,000
---------
4,341,241
----------
Foods & Beverages (14.8%)
4,200 Envirodyne Industries, Inc. .......... 10.25 12/01/01 3,297,000
3,000 PepsiCo Inc. ......................... 15.00 06/14/96 3,101,310
1,000 SC International Services, Inc. ...... 13.00 10/01/05 1,072,500
2,000 Seven Up/RC Bottling Co. Southern
California, Inc. (d)................. 11.50 08/01/99 1,242,500
7,000 Specialty Foods Acquisition Corp.
(Series B)........................... 13.00++ 08/15/05 3,430,000
----------
12,143,310
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 4
HIGH INCOME ADVANTAGE III
PORTFOLIO OF INVESTMENTS January 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Manufacturing (6.4%)
$ 1,700 Alpine Group, Inc. ................... 12.25 % 07/15/03 $ 1,666,000
1,000 Berry Plastics Corp. ................. 12.25 04/15/04 1,085,000
1,000 Cabot Safety Corp. ................... 12.50 07/15/05 1,085,000
500 International Wire Group.............. 11.75 06/01/05 488,750
1,000 Uniroyal Technology Corp. ............ 11.75 06/01/03 960,000
---------
5,284,750
---------
Manufacturing - Diversified (7.8%)
1,500 Foamex L.P. .......................... 11.875 10/01/04 1,447,500
1,750 Interlake Corp. ...................... 12.125 03/01/02 1,680,000
1,000 J.B. Poindexter & Co., Inc. .......... 12.50 05/15/04 850,000
1,000 Jordan Industries, Inc. .............. 10.375 08/01/03 903,750
2,400 Jordan Industries, Inc. .............. 11.75++ 08/01/05 1,524,000
---------
6,405,250
---------
Oil & Gas (3.3%)
1,000 Deeptech International, Inc. ......... 12.00 12/15/00 910,000
2,000 Empire Gas Corp. ..................... 7.00 07/15/04 1,800,000
---------
2,710,000
---------
Publishing (6.1%)
4,000 Affiliated Newspapers Investments,
Inc. ................................ 13.25++ 07/01/06 2,580,000
1,000 Garden State Newspapers, Inc. ........ 12.00 07/01/04 1,035,000
1,875 United States Banknote Corp. ......... 10.375 06/01/02 1,368,750
---------
4,983,750
---------
Restaurants (7.9%)
4,750 American Restaurant Group Holdings,
Inc. ................................ 14.00++ 12/15/05 2,196,875
1,000 Carrols Corp. ........................ 11.50 08/15/03 1,030,000
4,700 Flagstar Corp. ....................... 11.25 11/01/04 3,290,000
---------
6,516,875
---------
Retail (3.0%)
800 Cort Furniture Rental Corp. .......... 12.00 09/01/00 856,000
1,000 County Seat Stores Co. ............... 12.00 10/01/02 725,000
900 Thrifty Payless Holdings, Inc. ....... 11.625+ 04/15/06 882,000
---------
2,463,000
---------
Retail - Food Chains (0.6%)
500 Ralphs Grocery Co. ................... 11.00 06/15/05 475,000
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
HIGH INCOME ADVANTAGE III
PORTFOLIO OF INVESTMENTS January 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Textiles - Apparel Manufacturers
(3.9%)
$ 57 Farley, Inc. (Conv.).................. 0.00 % 01/01/12 $ 5,552
3,048 JPS Textile Group, Inc. .............. 10.85 06/01/99 2,468,880
1,000 U.S. Leather, Inc. ................... 10.25 07/31/03 700,000
----------
3,174,432
----------
TOTAL CORPORATE BONDS
(Identified Cost $83,856,301).................................. 76,581,743
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (a) (1.1%)
Computer Equipment (0.1%)
95,553 Memorex Telex NV (ADR) (Netherlands) (b)....................... 113,469
---------
Entertainment/Gaming & Lodging (0.2%)
2,000 Motels of America, Inc. - 144A*................................ 170,000
---------
Foods & Beverages (0.4%)
90,000 Specialty Foods Acquisition Corp. (Restricted) - 144A*......... 247,500
---------
Publishing (0.1%)
4,000 Affiliated Newspapers Investments, Inc. (Class B).............. 120,000
---------
Restaurants (0.1%)
4,750 American Restaurant Group Holdings, Inc. - 144A*............... 71,250
---------
Retail (0.2%)
38,000 Thrifty Payless Holdings, Inc. (Class C)....................... 190,000
---------
TOTAL COMMON STOCKS
(Identified Cost $2,981,994)................................... 912,219
---------
PREFERRED STOCKS (2.5%)
Entertainment/Gaming & Lodging (2.5%)
80,000 Fitzgeralds Gaming Corp. (Units)+++ $3.75...................... 2,020,000
---------
Utilities - Electric (0.0%)
327,500 TGX Corp. Series A (a) (b)..................................... 40,938
---------
TOTAL PREFERRED STOCKS
(Identified Cost $4,718,250)................................... 2,060,938
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
HIGH INCOME ADVANTAGE III
PORTFOLIO OF INVESTMENTS January 31, 1996, continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WARRANTS (a) (0.7%)
Aerospace (0.0%)
2,500 Sabreliner Corp. (Restricted) - 144A*............ 04/15/03 $ 25,000
---------
Cable & Telecommunications (0.1%)
5,500 In-Flight Phone Corp. - 144A*.................... 08/31/02 55,000
---------
Containers (0.1%)
2,000 Crown Packaging Holdings, Ltd.
(Canada) - 144A*................................ 11/01/03 110,000
---------
Entertainment/Gaming & Lodging (0.0%)
3,263 Casino America, Inc. ............................ 11/15/96 --
4,500 Fitzgeralds Gaming Corp. - 144A*................. 03/15/99 31,500
---------
31,500
---------
Manufacturing (0.0%)
2,000 BPC Holdings Corp. .............................. 04/15/04 25,000
10,000 Uniroyal Technology Corp. ....................... 06/01/03 20,000
---------
45,000
---------
Oil & Gas (0.0%)
2,760 Empire Gas Corp. ................................ 07/15/04 27,600
---------
Retail (0.5%)
2,000 County Seat Holdings Co. ........................ 10/15/98 40,000
66,000 New Cort Holdings Corp. ......................... 09/01/98 297,000
---------
337,000
---------
Retail - Food Chains (0.0%)
8,608 Grand Union Co. (Series 1) (b)................... 06/16/00 --
17,216 Grand Union Co. (Series 2) (b)................... 06/16/00 --
---------
--
---------
TOTAL WARRANTS
(Identified Cost $619,608)....................... 631,100
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
HIGH INCOME ADVANTAGE III
PORTFOLIO OF INVESTMENTS January 31, 1996, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (0.2%)
REPURCHASE AGREEMENT
$ 144 The Bank of New York (dated 01/31/96;
proceeds $144,062; collateralized by
$152,753 U.S. Treasury Bill 4.84% due
11/14/96 valued at $146,920)
(Identified Cost $144,039)........... 5.75% 02/01/96 $ 144,039
-----------
TOTAL INVESTMENTS
(Identified Cost $92,320,192) (e)...................... 97.6% 80,330,039
OTHER ASSETS IN EXCESS OF LIABILITIES.................... 2.4 1,946,860
----- -----------
NET ASSETS............................................. 100.0% $82,276,899
===== ===========
</TABLE>
----------------------------------------------
<TABLE>
<CAPTION>
ADR American Depository Receipt.
<C> <S>
* Resale is restricted to qualified institutional investors.
+++ Consists of one or more class of securities traded together as a unit;
generally stocks with attached warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Non-income producing securities.
(b) Acquired through exchange offer.
(c) Non-income producing security, issuer in bankruptcy.
(d) Non-income producing security, bond in default.
(e) The aggregate cost for federal income tax purposes approximates identified
cost.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
HIGH INCOME ADVANTAGE TRUST III
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
<S> <C>
January 31, 1996
ASSETS:
Investments in securities, at value
(identified cost $92,320,192)........... $ 80,330,039
Receivable for:
Interest............................. 1,557,520
Investments sold..................... 1,318,125
Prepaid expenses and other assets........ 4,340
----------
TOTAL ASSETS......................... 83,210,024
----------
LIABILITIES:
Payable for:
Investments purchased................ 816,250
Investment management fee............ 55,465
Accrued expenses and other payables...... 61,410
----------
TOTAL LIABILITIES.................... 933,125
----------
NET ASSETS:
Paid-in-capital.......................... 121,076,287
Net unrealized depreciation.............. (11,990,153)
Accumulated undistributed net investment
income.................................. 1,017,548
Accumulated net realized loss............ (27,826,783)
----------
NET ASSETS........................... $ 82,276,899
==========
NET ASSET VALUE PER SHARE,
12,876,779 shares outstanding (unlimited
shares authorized of $.01 par value).... $6.39
====
STATEMENT OF OPERATIONS
For the year ended January 31, 1996
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $10,430,133
----------
EXPENSES
Investment management fee................ 612,604
Professional fees........................ 56,003
Transfer agent fees and expenses......... 52,608
Shareholder reports and notices.......... 26,113
Registration fees........................ 24,847
Custodian fees........................... 21,223
Trustees' fees and expenses.............. 17,589
Other.................................... 5,689
----------
TOTAL EXPENSES....................... 816,676
----------
NET INVESTMENT INCOME................ 9,613,457
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................ (2,246,851)
Net change in unrealized depreciation.... 5,416,939
----------
NET GAIN............................. 3,170,088
----------
NET INCREASE............................. $12,783,545
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
HIGH INCOME ADVANTAGE TRUST III
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1996 JANUARY 31, 1995
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 9,613,457 $ 9,615,361
Net realized loss............................... (2,246,851) (12,646,621)
Net change in unrealized depreciation........... 5,416,939 (5,793,370)
----------- ------------
NET INCREASE (DECREASE)..................... 12,783,545 (8,824,630)
Dividends from net investment income............ (9,271,281) (9,876,489)
----------- ------------
TOTAL INCREASE (DECREASE)................... 3,512,264 (18,701,119)
NET ASSETS:
Beginning of period............................. 78,764,635 97,465,754
----------- ------------
END OF PERIOD
(Including undistributed net investment
income of $1,017,548 and $675,372,
respectively)............................... $ 82,276,899 $ 78,764,635
=========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS January 31, 1996
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's primary investment objective is to
earn a high level of current income and, as a secondary objective, capital
appreciation, but only when consistent with its primary objective. The Trust
seeks to achieve its objective by investing primarily in lower-rated fixed
income securities. The Trust was organized as a Massachusetts business trust on
November 23, 1988 and commenced operations on February 28, 1989.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York or American Stock Exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued; if there were no sales that
day, the security is valued at the latest bid price; (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees; (4) certain
of the Trust's portfolio securities may be valued by an outside pricing service
approved by the Trustees. The pricing service utilizes a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
<PAGE> 11
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS January 31, 1996, continued
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Trust pays a management fee, calculated
weekly and payable monthly, by applying the following annual rates to the
Trust's weekly net assets: 0.75% to the portion of weekly net assets not
exceeding $250 million; 0.60% to the portion of weekly net assets exceeding
$250 million but not exceeding $500 million; 0.50% to the portion of weekly net
assets exceeding $500 million but not exceeding $750 million; 0.40% to the
portion of weekly net assets exceeding $750 million but not exceeding $1
billion; and 0.30% to the portion of weekly net assets exceeding $1 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Trust.
<PAGE> 12
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS January 31, 1996, continued
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended January 31, 1996
aggregated $62,972,241 and $59,936,162, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At January 31, 1996, the Trust had transfer agent fees
and expenses payable of approximately $5,000.
4. SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
CAPITAL PAID
PAR VALUE OF IN EXCESS OF
SHARES SHARES PAR VALUE
---------- ------------ ------------
<S> <C> <C> <C>
Balance, January 31, 1995 and 1996............................................. 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 RECORD PAYABLE
DECLARATION DATE PER SHARE DATE DATE
------------------- --------- ------------------ ------------------
<S> <C> <S> <S>
January 30, 1996 $0.06 February 9, 1996 February 23, 1996
February 27, 1996 $0.06 March 8, 1996 March 22, 1996
</TABLE>
6. FEDERAL INCOME TAX STATUS
At January 31, 1995, the Trust had an approximate net capital loss carryover
which may be used to offset future capital gains to the extent provided by
regulations as follows:
<TABLE>
<CAPTION>
AVAILABLE THROUGH JANUARY 31
- ------------------------------------------------------------------------------------
2000 2002 2003 2004 TOTAL
- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
$9,648,000 $3,256,000 $10,665,000 $4,232,000 $27,801,000
========== ========== =========== ========== ===========
</TABLE>
<PAGE> 13
HIGH INCOME ADVANTAGE TRUST III
NOTES TO FINANCIAL STATEMENTS January 31, 1996, continued
7. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
1/31/96 10/31/95 7/31/95 4/30/95
------------------ ------------------ ------------------ ------------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income............. $ 2,703 $ 0.21 $ 2,521 $ 0.20 $ 2,736 $ 0.21 $ 2,470 $ 0.19
Net investment income............... 2,521 0.20 2,303 0.18 2,515 0.19 2,274 0.18
Net realized and unrealized gain
(loss)............................. 193 0.01 (1,731) (0.13) 2,205 0.17 2,503 0.19
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
1/31/95 10/31/94 7/31/94 4/30/94
------------------ ------------------ ------------------ ------------------
PER PER PER PER
TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE TOTAL* SHARE
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income............. $ 2,522 $ 0.20 $ 2,698 $ 0.21 $ 2,675 $ 0.21 $ 2,609 $ 0.20
Net investment income............... 2,299 0.18 2,492 0.19 2,451 0.19 2,373 0.19
Net realized and unrealized loss.... (2,635) (0.20) (4,587) (0.36) (6,559) (0.51) (4,659) (0.36)
</TABLE>
- ---------------------
* Amounts in thousands.
<PAGE> 14
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 YEAR ENDED JANUARY 31
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 6.12 $ 7.57 $ 6.70 $ 6.83 $ 5.18
----- ----- ----- ----- -----
Net investment income................................................. 0.75 0.75 0.81 0.91 0.84
Net realized and unrealized gain (loss)............................... 0.24 (1.43) 0.91 (0.13) 1.58
----- ----- ----- ----- -----
Total from investment operations...................................... 0.99 (0.68) 1.72 0.78 2.42
Dividends from net investment income.................................. (0.72) (0.77) (0.85) (0.91) (0.77)
----- ----- ----- ----- -----
Net asset value, end of period........................................ $ 6.39 $ 6.12 $ 7.57 $ 6.70 $ 6.83
===== ===== ===== ===== =====
Market value, end of period........................................... $ 6.75 $ 6.50 $ 7.75 $6.875 $ 6.50
===== ===== ===== ===== =====
TOTAL INVESTMENT RETURN+.............................................. 15.31% (6.30%) 26.21% 20.77% 60.31%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.00% 1.02% 0.99% 1.06% 1.17%
Net investment income................................................. 11.80% 11.04% 11.40% 13.22% 13.53%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $82,277 $78,765 $97,466 $86,305 $89,084
Portfolio turnover rate............................................... 78% 82% 231% 118% 137%
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- ---------------------
+ Total investment return is based upon the current market value on the last day
of each period reported. Dividends are assumed to be reinvested at the prices
obtained under the Trust's dividend reinvestment plan. Total investment return
does not reflect brokerage commissions.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
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, 1996, 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 at January 31, 1996 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, 1996
<PAGE> 16
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<S> <C>
TRUSTEES
- ----------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson HIGH
Paul Kolton INCOME
Michael E. Nugent ADVANTAGE
Philip J. Purcell TRUST III
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
ANNUAL REPORT
JANUARY 31, 1996
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