Schedule 14A Information required in proxy statement.
                            Schedule 14A Information
           Proxy Statement Pursuant to Section 14(a) of the Securities
                     Exchange Act of 1934 (Amendment No.__)



Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [    ]


Check the appropriate box:

   
[   ]   Preliminary Proxy Statement
[   ]   Preliminary Additional Materials
[   ]   Confidential, for Use of the Commission Only (as 
        permitted by Rule 14a-6(e)(2))
[ X ]   Definitive Proxy Statement
[   ]   Definitive Additional Materials
[   ]   Soliciting Material Pursuant to Section 240.149-11(c) or
        Section 240.14a-12
    

- --------------------------------------------------------------------------------
     High Income Advantage Trust III
        (Name of Registrant(s) Specified in its Charter)
- --------------------------------------------------------------------------------
     Lou Anne McInnis
        (Name of Person(s) Filing Proxy Statement)
- --------------------------------------------------------------------------------

       Payment of Filing Fee (check the appropriate box):


[ x  ]  No fee required.
[    ]  Fee computed on table below per Exchange Act Rules
        14a-6(j)(4) and 0-11.


1)   Title of each class of securities to which transaction
     applies:
- --------------------------------------------------------------------------------

2)   Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------

3)   Per unit price or other underlying value of transaction
     computed pursuant to Exchange Act Rule 0-11:
- --------------------------------------------------------------------------------
     Set forth the amount on which the filing fee is calculated
     and state how it was determined.

4)   Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------

5)   Fee previously paid:
- --------------------------------------------------------------------------------

[    ]  Check box if any part of the fee is offset as provided by
        Exchange Act Rule 0-11(a)(2) and identify the filing for
        which the offsetting fee was paid previously.  Identify
        the previous filing by registration statement number, or
        the Form or Schedule and the date of its filing.

1)   Amount Previously Paid:
- --------------------------------------------------------------------------------

2)   Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------

3)   Filing Party:
- --------------------------------------------------------------------------------

4)   Date Filed:
- --------------------------------------------------------------------------------


   
                        HIGH INCOME ADVANTAGE TRUST III
                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                            TO BE HELD MAY 20, 1997
    
 
   
    The  Annual Meeting of Shareholders (the "Meeting") of HIGH INCOME ADVANTAGE
TRUST III (the "Trust"),  an unincorporated business  trust organized under  the
laws  of  the  Commonwealth  of  Massachusetts,  will  be  held  in  the  Career
Development Room, Sixty-First Floor,  2 World Trade Center,  New York, New  York
10048,  on May 20,  1997, at 10:00 a.m.,  New York City  time, for the following
purposes:
    
 
   
        1.  To elect three (3) Trustees, two (2) to serve until the 2000  Annual
    Meeting  and one  (1) to serve  until the  1998 Annual Meeting,  or, in each
    case, until their successors shall have been elected and qualified;
    
 
        2.   To approve  or  disapprove a  new Investment  Management  Agreement
    between  the  Trust  and  Dean  Witter  InterCapital  Inc.,  a  wholly-owned
    subsidiary of Dean Witter,  Discover & Co. ("DWDC")  in connection with  the
    proposed merger of Morgan Stanley Group Inc. with DWDC;
 
        3.   To ratify  or reject the  selection of Price  Waterhouse LLP as the
    Trust's independent accountants for the fiscal year ending January 31, 1998;
    and
 
        4.  To  transact such  other business as  may properly  come before  the
    Meeting or any adjournments thereof.
 
    Shareholders  of record as  of the close  of business on  March 12, 1997 are
entitled to notice of and  to vote at the Meeting.  If you cannot be present  in
person,  your management would  greatly appreciate your  filling in, signing and
returning the enclosed proxy promptly in the envelope provided for that purpose.
 
    In the event  that the  necessary quorum to  transact business  or the  vote
required  to approve or reject any proposal  is not obtained at the Meeting, the
persons named as proxies may propose one or more adjournments of the Meeting for
a total of not more than 60 days in the aggregate to permit further solicitation
of proxies.  Any such  adjournment  will require  the  affirmative vote  of  the
holders of a majority of the Trust's shares present in person or by proxy at the
Meeting.  The persons named  as proxies will  vote in favor  of such adjournment
those proxies which they are  entitled to vote in favor  of Proposal 2 and  will
vote  against any  such adjournment those  proxies required to  be voted against
that proposal.
 
                                                   BARRY FINK
                                                    SECRETARY
   
March 19, 1997
New York, New York
    
 
                                    IMPORTANT
      YOU CAN  HELP THE  TRUST  AVOID THE  NECESSITY  AND EXPENSE  OF  SENDING
  FOLLOW-UP  LETTERS TO  ENSURE A  QUORUM BY  PROMPTLY RETURNING  THE ENCLOSED
  PROXY. IF YOU ARE UNABLE TO BE  PRESENT IN PERSON, PLEASE FILL IN, SIGN  AND
  RETURN  THE  ENCLOSED  PROXY  IN  ORDER THAT  THE  NECESSARY  QUORUM  MAY BE
  REPRESENTED AT THE  MEETING. THE  ENCLOSED ENVELOPE REQUIRES  NO POSTAGE  IF
  MAILED IN THE UNITED STATES.

   
                        HIGH INCOME ADVANTAGE TRUST III
                TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
    
 
                             ---------------------
 
                                PROXY STATEMENT
                             ---------------------
 
                         ANNUAL MEETING OF SHAREHOLDERS
 
   
                                  MAY 20, 1997
    
 
   
    This  statement is furnished in connection  with the solicitation of proxies
by the Board of  Trustees (the "Board" or  "Trustees") of HIGH INCOME  ADVANTAGE
TRUST  III (the "Trust"), for  use at the Annual  Meeting of Shareholders of the
Trust to  be held  on May  20, 1997  (the "Meeting"),  and at  any  adjournments
thereof.
    
 
    If  the enclosed form of proxy is  properly executed and returned in time to
be voted  at  the  Meeting, the  proxies  named  therein will  vote  the  shares
represented  by the  proxy in accordance  with the  instructions marked thereon.
Unmarked proxies will be voted for each of the nominees for election as  Trustee
and  in favor of  Proposals 2 and 3  set forth in the  attached Notice of Annual
Meeting of  Shareholders. A  proxy  may be  revoked at  any  time prior  to  its
exercise  by any of the following: written notice of revocation to the Secretary
of the Trust, execution and delivery of a later dated proxy to the Secretary  of
the  Trust (if  returned and received  in time  to be voted),  or attendance and
voting at the  Meeting. Attendance  at the  Meeting will  not in  and of  itself
revoke a proxy.
 
   
    Holders of shares of the Trust ("Shareholders") of record as of the close of
business   on  March  12,  1997,  the  record  date  for  the  determination  of
Shareholders entitled to notice of and to  vote at the Meeting, are entitled  to
one  vote for each share  held and a fractional vote  for a fractional share. On
March 12, 1997, there were outstanding 12,876,779 shares of beneficial  interest
of  the Trust, all with $.01 par value. No person was known to own as much as 5%
of the outstanding shares of the Trust on that date. The percentage ownership of
shares of the Trust changes from time  to time depending on purchases and  sales
by Shareholders and the total number of shares outstanding. The first mailing of
this Proxy Statement is expected to be made on or about March 19, 1997.
    
 
   
    The  cost of soliciting  proxies for the  Meeting, consisting principally of
printing and  mailing expenses,  is estimated  to be  approximately $20,500,  of
which  approximately $15,000 will be borne by  the Trust, the remainder of which
will be  borne by  Dean Witter,  Discover &  Co. ("DWDC").  The solicitation  of
proxies  will be  by mail,  which may be  supplemented by  solicitation by mail,
telephone or otherwise through Trustees, officers  of the Trust or officers  and
regular  employees  of  Dean  Witter InterCapital  Inc.  ("InterCapital"  or the
"Investment Manager"), Dean Witter Trust Company ("DWTC"), Dean Witter  Services
Company  Inc. ("DWSC") and/or employees of broker-dealers, including Dean Witter
Reynolds Inc. ("DWR"), without special  compensation therefor. In addition,  the
Trust  may employ William F. Doring & Co.  as proxy solicitor, the cost of which
is not expected to exceed $5,000 and will be borne by DWDC.
    
 
    William F. Doring & Co. and DWTC may call Shareholders to ask if they  would
be  willing  to have  their votes  recorded by  telephone. The  telephone voting
procedure  is  designed  to  authenticate  Shareholders'  identities,  to  allow
Shareholders  to authorize the  voting of their shares  in accordance with their
instructions and to confirm that their instructions have been recorded properly.
No recommendation  will be  made as  to how  a Shareholder  should vote  on  any
proposal  other than to refer to the recommendations of the Board. The Trust has
been advised by
 
                                       2

   
counsel that these procedures are consistent with the requirements of applicable
law. Shareholders voting by  telephone will be asked  for their social  security
number  or other  identifying information  and will  be given  an opportunity to
authorize proxies to vote their shares in accordance with their instructions. To
ensure that the  Shareholders' instructions  have been  recorded correctly  they
will  receive  a  confirmation of  their  instructions  in the  mail.  A special
toll-free number will  be available  in case  the information  contained in  the
confirmation  is  incorrect.  Although  a Shareholder's  vote  may  be  taken by
telephone, each Shareholder will receive a copy of this Proxy Statement and  may
vote  by mail using the enclosed proxy card. With respect to the solicitation of
a telephonic vote by William F. Doring & Co., additional expenses would  include
$7.00  per telephone vote  transacted, $3.00 per  outbound telephone contact and
costs relating to obtaining Shareholders' telephone numbers which would be borne
by DWDC.
    
 
                            (1) ELECTION OF TRUSTEES
 
   
    The number  of Trustees  has been  fixed by  the Trustees,  pursuant to  the
Trust's  Declaration of  Trust, as amended,  at nine. There  are presently eight
Trustees, two of whom  (Michael Bozic and Charles  A. Fiumefreddo) are  standing
for   election  at  this  Meeting  to  serve  until  the  2000  Annual  Meeting.
Additionally, one nominee to the Trust's Board of Trustees, Wayne E. Hedien,  is
standing  for election at  the Meeting for  the first time,  and, if elected, to
serve until  the  1998  Annual  Meeting, all  in  accordance  with  the  Trust's
Declaration of Trust, as amended.
    
 
   
    Six  of the current  eight Trustees (Michael  Bozic, Edwin J.  Garn, John R.
Haire, Manuel  H.  Johnson,  Michael  E.  Nugent  and  John  L.  Schroeder)  are
"Independent  Trustees," that is,  Trustees who are  not "interested persons" of
the Trust, as that  term is defined  in the Investment Company  Act of 1940,  as
amended  (the "1940  Act"). Mr.  Hedien has been  nominated for  election at the
Meeting, and, if  elected, also will  be an Independent  Trustee. The other  two
current  Trustees, Charles A. Fiumefreddo and  Philip J. Purcell are "interested
persons" (as that term is defined in the 1940 Act) of the Trust and InterCapital
and thus are NOT Independent Trustees. The nominees for election as  Independent
Trustees  have been proposed by the Independent Trustees now serving. All of the
Trustees currently serving have been elected previously by the Shareholders.
    
 
   
    The nominees of the  Board of Trustees for  election as Trustees are  listed
below. It is the intention of the persons named in the enclosed form of Proxy to
vote  the shares represented by them for the election of these nominees: Michael
Bozic, Charles A. Fiumefreddo  and Wayne E. Hedien.  Should any of the  nominees
become  unable or unwilling to accept nomination, or election, the persons named
in the proxy will exercise their voting power in favor of such person or persons
as the Board may recommend. All of the nominees have consented to being named in
this Proxy Statement and to serve if elected (if elected, Mr. Hedien's term will
commence September 1, 1997). The Trust knows no reason why any of said  nominees
would  be unable or unwilling to accept  nomination or election. The election of
each Trustee requires  the approval of  a majority  of the shares  of the  Trust
represented and entitled to vote at the Meeting.
    
 
   
    Pursuant  to the  provisions of  the Declaration  of Trust,  as amended, the
Trustees are divided into  three separate classes, each  class having a term  of
three  years. The term of office of one of each of the three classes will expire
each year.
    
 
   
    The Board previously  determined that  any nominee for  election as  Trustee
shall  stand for election  as Trustee and serve  as Trustee in  one of the three
classes of Trustees as follows: Class I -- Messrs. Bozic and Fiumefreddo;  Class
II  -- Messrs.  Hedien, Johnson  and Schroeder; and  Class III  -- Messrs. Garn,
Haire, Nugent and Purcell.  Each nominee for Trustee  will, if elected, serve  a
term   of   up   to   approximately  three   years   running   for   the  period
    
 
                                       3

   
assigned to that  class and terminating  at the  date of the  Annual Meeting  of
Shareholders  so  designated  by  the  Board,  or  any  adjournment  thereof. In
accordance with the above, the Trustees in Class I are standing for election  at
this  Meeting and, if elected, will serve until the 2000 Annual Meeting or until
their successors shall have  been elected and  qualified. Additionally, the  new
nominee  is standing for election as Trustee in Class II, and, if elected at the
Meeting, will serve until the 1998 Annual Meeting, or until his successor  shall
have  been elected and qualified.  As a consequence of  this method of election,
the replacement of a majority of the Board could be delayed for up to two years.
    
 
    The following information  regarding each  of the nominees  for election  as
Trustee, and each of the members of the Board includes his principal occupations
and  employment for at least  the last five years, his  age, shares of the Trust
owned, if any, as of March 12,  1997 (shown in parentheses), positions with  the
Trust,  and  directorships  or  trusteeships in  companies  which  file periodic
reports with the Securities and Exchange Commission, including the 84 investment
companies, including  the Trust,  for which  InterCapital serves  as  investment
manager  or investment adviser  (referred to herein as  the "Dean Witter Funds")
and  the  14   investment  companies  for   which  InterCapital's   wholly-owned
subsidiary,  DWSC, serves  as manager and  TCW Funds Management,  Inc. serves as
investment adviser (referred to herein as the "TCW/DW Funds").
 
    The nominees for Trustee to be elected at this Meeting are:
 
   
    MICHAEL BOZIC,  Trustee  since  April,  1994; age  56;  Chairman  and  Chief
Executive  Officer  of  Levitz  Furniture  Corporation  (since  November, 1995);
Director or  Trustee of  the Dean  Witter Funds;  formerly President  and  Chief
Executive  Officer of Hills  Department Stores (May,  1991-July, 1995); formerly
variously Chairman,  Chief  Executive  Officer, President  and  Chief  Operating
Officer  (1987-1991) of the  Sears Merchandise Group of  Sears, Roebuck and Co.;
Director of Eaglemark Financial  Services, Inc., the  United Negro College  Fund
and Weirton Steel Corporation.
    
 
    CHARLES  A. FIUMEFREDDO, Trustee  since July, 1991;  age 63; Chairman, Chief
Executive  Officer  and   Director  of  InterCapital,   DWSC  and  Dean   Witter
Distributors  Inc. ("Distributors");  Executive Vice  President and  Director of
DWR; Chairman, Director or Trustee, President and Chief Executive Officer of the
Dean Witter Funds; Chairman, Chief Executive  Officer and Trustee of the  TCW/DW
Funds;  Chairman and Director  of DWTC; Director and/or  officer of various DWDC
subsidiaries; formerly  Executive Vice  President and  Director of  DWDC  (until
February, 1993).
 
   
    WAYNE  E. HEDIEN, age 63; Retired; Director  of The PMI Group, Inc. (private
mortgage insurance); Trustee and  Vice Chairman of The  Field Museum of  Natural
History;  formerly  associated  with the  Allstate  Companies  (1966-1994), most
recently as Chairman of The Allstate Corporation (March 1993-December 1994)  and
Chairman  and Chief Executive  Officer of its  wholly-owned subsidiary, Allstate
Insurance Company (July 1989-December 1994); director of various other  business
and charitable organizations.
    
 
    The Trustees who are not standing for re-election at this Meeting are:
 
   
    EDWIN  JACOB (JAKE) GARN,  Trustee since January, 1993;  age 64; Director or
Trustee of  the  Dean Witter  Funds;  formerly United  States  Senator  (R-Utah)
(1974-1992)  and Chairman, Senate Banking  Committee (1980-1986); formerly Mayor
of Salt Lake City, Utah (1971-1974); formerly Astronaut, Space Shuttle Discovery
(April 12-19, 1985); Vice Chairman, Huntsman Corporation (since January,  1993);
Director  of Franklin Quest  (time management systems)  and John Alden Financial
Corp. (health insurance); member  of the board of  various civic and  charitable
organizations.
    
 
                                       4

    JOHN  R. HAIRE, Trustee since December, 1988;  age 72; Chairman of the Audit
Committee and Chairman of the Committee of the Independent Directors or Trustees
and Director  or  Trustee  of the  Dean  Witter  Funds; Chairman  of  the  Audit
Committee  and Chairman of the Committee of the Independent Trustees and Trustee
of  the  TCW/DW  Funds;  formerly  President,  Council  for  Aid  to   Education
(1978-1989)  and Chairman and Chief Executive  Officer of Anchor Corporation, an
investment adviser  (1964-1978);  Director of  Washington  National  Corporation
(insurance).
 
   
    MANUEL H. JOHNSON, Trustee since July, 1991; age 48; Senior Partner, Johnson
Smick  International, Inc., a consulting firm;  Co-Chairman and a founder of the
Group of Seven Council (G7C), an international economic commission; Director  or
Trustee  of the  Dean Witter  Funds; Trustee  of the  TCW/DW Funds;  Director of
NASDAQ  (since  June,  1995);  Director  of  Greenwich  Capital  Markets,   Inc.
(broker-dealer);  Trustee  of  the  Financial  Accounting  Foundation (oversight
organization for the FASB); formerly Vice Chairman of the Board of Governors  of
the  Federal  Reserve System  (1986-1990) and  Assistant  Secretary of  the U.S.
Treasury (1982-1986).
    
 
    MICHAEL E.  NUGENT,  Trustee since  July,  1991; age  60;  General  Partner,
Triumph  Capital, L.P., a private investment partnership; Director or Trustee of
the Dean Witter  Funds; Trustee of  the TCW/DW Funds;  formerly Vice  President,
Bankers  Trust  Company  and  BT Capital  Corporation  (1984-1988);  director of
various business organizations.
 
    PHILIP J. PURCELL, Trustee since April, 1994; age 53; Chairman of the  Board
of Directors and Chief Executive Officer of DWDC, DWR, and Novus Credit Services
Inc.;  Director of InterCapital,  DWSC and Distributors;  Director or Trustee of
the Dean Witter Funds; Director and/or officer of various DWDC subsidiaries.
 
    JOHN L. SCHROEDER, Trustee since April,  1994; age 66; Retired; Director  or
Trustee  of the  Dean Witter  Funds; Trustee  of the  TCW/DW Funds;  Director of
Citizens  Utilities  Company;  formerly  Executive  Vice  President  and   Chief
Investment  Officer of The Home Insurance Company (August, 1991-September, 1995)
and formerly Chairman  and Chief Investment  Officer of Axe-Houghton  Management
and the Axe-Houghton Funds (April, 1983-June, 1991).
 
    The  executive officers of the Trust other than shown above are: Barry Fink,
Vice  President,  Secretary  and  General  Counsel;  Robert  M.  Scanlan,   Vice
President;  Joseph  J.  McAlinden,  Vice President;  Robert  S.  Giambrone, Vice
President; Peter M. Avelar, Vice President; and Thomas F. Caloia, Treasurer.  In
addition,  Jonathan R.  Page and  James F. Willison  are Vice  Presidents of the
Trust and Marilyn K. Cranney, Lou Anne D. McInnis, Ruth Rossi, Carsten Otto  and
Frank  Bruttomesso serve as Assistant Secretaries. Mr.  Fink is 42 years old and
is currently  First Vice  President (since  June, 1993),  Secretary and  General
Counsel (since February, 1997) of InterCapital and DWSC and (since August, 1996)
Assistant Secretary of DWR; he is also First Vice President, Assistant Secretary
and  Assistant General  Counsel of Distributors  (since February,  1997). He was
previously Vice President, Assistant Secretary and Assistant General Counsel  of
InterCapital  and DWSC. Mr. Scanlan  is 60 years old  and is currently President
and Chief Operating Officer of InterCapital (since March, 1993) and DWSC; he  is
also  Executive Vice President of Distributors  and Executive Vice President and
Director of DWTC.  He was  previously Executive Vice  President of  InterCapital
(July, 1992-March, 1993) and prior thereto was Chairman of Harborview Group Inc.
Mr.  McAlinden is  54 years  old and  is currently  Executive Vice  President of
InterCapital (since  April,  1996);  he  is also  Chief  Investment  Officer  of
InterCapital  and Director of DWTC (since April, 1996). He was previously Senior
Vice President of InterCapital (June, 1995-April, 1996) and prior thereto was  a
Managing Director at Dillon Read. Mr. Giambrone is 42 years old and is currently
Senior  Vice  President  of  InterCapital, DWSC,  Distributors  and  DWTC (since
August, 1995)  and Director  of DWTC  (since  April, 1996).  He was  formerly  a
partner  of KPMG Peat Marwick, LLP. Mr. Avelar  is 38 years old and is currently
Senior Vice President of InterCapital. Mr. Caloia is 51
 
                                       5

years old  and is  currently First  Vice President  and Assistant  Treasurer  of
InterCapital  and DWSC. Mr.  Page is 50  years old and  is currently Senior Vice
President of InterCapital. Mr. Willison is 53 years old and is currently  Senior
Vice  President  of  InterCapital.  Other than  Messrs.  Scanlan,  Giambrone and
McAlinden, each of the  above officers has been  an employee of InterCapital  or
DWR (formerly the corporate parent of InterCapital) for over five years.
 
   
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
    
 
   
    The  Board of Trustees currently consists  of eight (8) trustees. These same
individuals also  serve as  directors or  trustees for  all of  the Dean  Witter
Funds,  and are referred to in this section  as Trustees. As of the date of this
Proxy Statement, there are  a total of  84 Dean Witter  Funds, comprised of  127
portfolios.  As of February 28, 1997, the Dean Witter Funds had total net assets
of approximately $84.2 billion and more than six million shareholders.
    
 
   
    Six Trustees  and  the  new  nominee  (77% of  the  total  number)  have  no
affiliation  or business connection  with InterCapital or  any of its affiliated
persons. The other two Trustees (the "Management Trustees") are affiliated  with
InterCapital. For a period of at least three years after the consummation of the
merger  between Morgan Stanley Group Inc. with DWDC, at least 75% of the members
of the Board  of Trustees  of the  Trust will  not be  "interested persons"  (as
defined  in the 1940 Act) of InterCapital.  Four of the six Independent Trustees
are also Independent Trustees of the TCW/DW Funds.
    
 
    Law and regulation establish both general guidelines and specific duties for
the Independent Trustees.  The Dean  Witter Funds seek  as Independent  Trustees
individuals  of distinction and  experience in business  and finance, government
service or academia; these are people whose advice and counsel are in demand  by
others  and for  whom there is  often competition.  To accept a  position on the
Funds' Boards, such individuals may reject other attractive assignments  because
the  Funds make  substantial demands  on their time.  Indeed, by  serving on the
Funds' Boards, certain Trustees who would  otherwise be qualified and in  demand
to serve on bank boards would be prohibited by law from doing so.
 
    All  of  the current  Independent  Trustees serve  as  members of  the Audit
Committee and the  Committee of  the Independent  Trustees. Three  of them  also
serve as members of the Derivatives Committee. The Committees hold some meetings
at  InterCapital's offices and some outside InterCapital. Management Trustees or
officers do not attend  these meetings unless they  are invited for purposes  of
furnishing  information or making a report. The Funds do not have any nominating
or compensation committees.
 
    The Committee of the  Independent Trustees is  charged with recommending  to
the  full Board approval  of management, advisory  and administration contracts,
distribution   and   underwriting   agreements;   continually   reviewing   Fund
performance;   checking  on  the  pricing  of  portfolio  securities,  brokerage
commissions, transfer agent costs  and performance, and  trading among Funds  in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time.
 
    The  Audit  Committee is  charged with  recommending to  the full  Board the
engagement  or  discharge  of  the  Fund's  independent  accountants;  directing
investigations  into matters  within the  scope of  the independent accountants'
duties, including the power  to retain outside  specialists; reviewing with  the
independent  accountants the audit plan and  results of the auditing engagement;
approving professional  services provided  by  the independent  accountants  and
other  accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit  and
non-audit  fees;  reviewing  the  adequacy  of  the  Fund's  system  of internal
controls; and preparing  and submitting  Committee meeting minutes  to the  full
Board.
 
                                       6

    Finally,  the  Board of  each  Fund has  formed  a Derivatives  Committee to
establish parameters for and oversee the activities of the Fund with respect  to
derivative investments, if any, made by the Fund.
 
    For  the fiscal year  ended January 31,  1997, the Board  of Trustees of the
Trust held  seven  meetings, and  the  Audit  Committee, the  Committee  of  the
Independent  Trustees and the  Derivatives Committee of the  Trust held two, ten
and three meetings,  respectively. No  Trustee attended  fewer than  75% of  the
meetings  of the Board  of Trustees, the  Audit Committee, the  Committee of the
Independent Trustees or the Derivatives Committee  held while he served in  such
positions.
 
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
 
    The  Chairman of  the Committee  of the  Independent Trustees  and the Audit
Committee maintains an  office at  the Funds' headquarters  in New  York. He  is
responsible  for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He  screens and/or prepares written  materials
and  identifies  critical  issues  for  the  Independent  Trustees  to consider,
develops agendas  for Committee  meetings,  determines the  type and  amount  of
information  that the Committees will need to form a judgment on various issues,
and arranges to have  that information furnished to  Committee members. He  also
arranges  for  the services  of independent  experts and  consults with  them in
advance of meetings  to help  refine reports and  to focus  on critical  issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees  and guides their efforts is  pivotal to the effective functioning of
the Committees.
 
    The Chairman of the  Committees also maintains  continuous contact with  the
Funds' management, with independent counsel to the Independent Trustees and with
the  Funds' independent auditors.  He arranges for a  series of special meetings
involving the  annual  review  of  investment  advisory,  management  and  other
operating  contracts of  the Funds  and, on  behalf of  the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the  Committees serves as a  combination of chief executive  and
support staff of the Independent Trustees.
 
    The  Chairman of  the Committee  of the  Independent Trustees  and the Audit
Committee is  not  employed by  any  other  organization and  devotes  his  time
primarily  to the  services he  performs as  Committee Chairman  and Independent
Trustee of the Dean Witter Funds and  as an Independent Trustee and, since  July
1,  1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee of the TCW/DW Funds. The current Committee Chairman has had more  than
35 years experience as a senior executive in the investment company industry.
 
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
 
    The  Independent Trustees and the Funds'  management believe that having the
same Independent  Trustees  for  each  of  the  Dean  Witter  Funds  avoids  the
duplication  of  effort  that  would  arise  from  having  different  groups  of
individuals serving as  Independent Trustees for  each of the  Funds or even  of
sub-groups  of Funds.  They believe  that having  the same  individuals serve as
Independent Trustees of  all the  Funds tends  to increase  their knowledge  and
expertise regarding matters which affect the Fund complex generally and enhances
their  ability  to negotiate  on behalf  of  each Fund  with the  Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations  and
management  of the  Funds and  avoids the cost  and confusion  that would likely
ensue. Finally, having the  same Independent Trustees serve  on all Fund  Boards
enhances  the ability of  each Fund to  obtain, at modest  cost to each separate
Fund, the services of Independent Trustees, and a Chairman of their  Committees,
of  the caliber, experience and business acumen  of the individuals who serve as
Independent Trustees of the Dean Witter Funds.
 
                                       7

SHARE OWNERSHIP BY TRUSTEES
 
    The Trustees have adopted a policy pursuant to which each Trustee and/or his
or her spouse is required to invest at least $25,000 in any of the Funds in  the
Dean  Witter Funds complex (and, if applicable,  in the TCW/DW Funds complex) on
whose boards the Trustee serves. In  addition, the policy contemplates that  the
Trustees will, over time, increase their aggregate investment in the Funds above
the  $25,000 minimum  requirement. The  Trustees may  allocate their investments
among specific Funds in any manner they determine is appropriate based on  their
individual  investment objectives. As of the  date of this Proxy Statement, each
Trustee is in compliance with the policy. Any future Trustee will be given a one
year period  following his  or her  election  within which  to comply  with  the
foregoing.  As of December 31,  1996, the total value  of the investments by the
Trustees and/or  their spouses  in shares  of  the Dean  Witter Funds  (and,  if
applicable, the TCW/DW Funds) was approximately $9.8 million.
 
    As  of the record date  for this Meeting, the  aggregate number of shares of
beneficial interest of the Trust owned by the Trust's officers and Trustees as a
group was  less than  1 percent  of the  Trust's shares  of beneficial  interest
outstanding.
 
COMPENSATION OF INDEPENDENT TRUSTEES
 
    The  Trust pays each Independent Trustee an  annual fee of $1,000 plus a per
meeting fee of $50 for  meetings of the Board of  Trustees or committees of  the
Board  of Trustees attended by  the Trustee (the Trust  pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee  of
the  Independent Trustees  an additional annual  fee of $1,200).  The Trust also
reimburses such Trustees for travel and other out-of-pocket expenses incurred by
them in connection with  attending such meetings. Trustees  and officers of  the
Trust  who are or have been employed  by the Investment Manager or an affiliated
company receive no compensation or expense reimbursement from the Trust.
 
    The following  table  illustrates  the  compensation  paid  to  the  Trust's
Independent Trustees by the Trust for the fiscal year ended January 31, 1997.
 
                               TRUST COMPENSATION
 


                                                                   AGGREGATE
NAME OF                                                          COMPENSATION
INDEPENDENT TRUSTEE                                             FROM THE TRUST
- --------------------------------------------------------------  ---------------
                                                             
Michael Bozic.................................................      $1,800
Edwin J. Garn.................................................       1,850
John R. Haire.................................................       3,700
Dr. Manuel H. Johnson.........................................       1,800
Michael E. Nugent.............................................       1,800
John L. Schroeder.............................................       1,800

 
    The  following  table  illustrates  the  compensation  paid  to  the Trust's
Independent Trustees for the calendar year ended December 31, 1996 for  services
to  the 82 Dean Witter Funds and, in  the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31,  1996.
With  respect to Messrs. Haire, Johnson,  Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those  Funds
and five Dean Witter Money Market Funds.
 
                                       8

           CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
 


                                                                   FOR SERVICE AS
                                                                    CHAIRMAN OF      FOR SERVICE
                                                                   COMMITTEES OF         AS
                                                                    INDEPENDENT      CHAIRMAN OF     TOTAL CASH
                               FOR SERVICE                           DIRECTORS/     COMMITTEES OF   COMPENSATION
                              AS DIRECTOR OR                        TRUSTEES AND     INDEPENDENT    FOR SERVICES
                               TRUSTEE AND       FOR SERVICE AS        AUDIT          TRUSTEES           TO
                             COMMITTEE MEMBER     TRUSTEE AND      COMMITTEES OF      AND AUDIT        82 DEAN
                                OF 82 DEAN      COMMITTEE MEMBER         82         COMMITTEES OF      WITTER
NAME OF                           WITTER          OF 14 TCW/DW      DEAN WITTER          14         FUNDS AND 14
INDEPENDENT TRUSTEE               FUNDS              FUNDS             FUNDS        TCW/DW FUNDS    TCW/DW FUNDS
- ---------------------------  ----------------   ----------------   --------------   -------------   -------------
                                                                                     
Michael Bozic..............      $138,850                --                 --              --        $138,850
Edwin J. Garn..............       140,900                --                 --              --         140,900
John R. Haire..............       106,400           $64,283           $195,450        $ 12,187         378,320
Dr. Manuel H. Johnson......       137,100            66,483                 --              --         203,583
Michael E. Nugent..........       138,850            64,283                 --              --         203,133
John L. Schroeder..........       137,150            69,083                 --              --         206,233

 
    As  of the date  of this Proxy Statement,  57 of the  Dean Witter Funds, not
including  the  Trust,  have  adopted  a  retirement  program  under  which   an
Independent  Trustee who retires after serving for  at least five years (or such
lesser period as may be determined by  the Board) as an Independent Director  or
Trustee  of any Dean Witter  Fund that has adopted  the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Trustee referred to as
an "Eligible  Trustee") is  entitled to  retirement payments  upon reaching  the
eligible  retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible  Trustee
is  entitled to  receive from  the Adopting  Fund, commencing  as of  his or her
retirement date and continuing for the remainder  of his or her life, an  annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her Eligible
Compensation  plus 0.4166666% of such Eligible  Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in  excess
of five years up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(1) "Eligible Compensation" is one-fifth
of  the total compensation  earned by such  Eligible Trustee for  service to the
Adopting Fund  in  the five  year  period prior  to  the date  of  the  Eligible
Trustee's  retirement. Benefits under the retirement  program are not secured or
funded by the Adopting Funds.
 
    The following  table  illustrates the  retirement  benefits accrued  to  the
Trust's  Independent Trustees  by the  57 Dean  Witter Funds  (not including the
Trust) for  the year  ended  December 31,  1996,  and the  estimated  retirement
benefits   for  the  Trust's  Independent   Trustees,  to  commence  upon  their
retirement, from the 57 Dean Witter Funds as of December 31, 1996.
 
                                       9

                 RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
 
   


                                                                                     ESTIMATED
                                                                    RETIREMENT        ANNUAL
                                                                     BENEFITS        BENEFITS
                                ESTIMATED                           ACCRUED AS         UPON
                              CREDITED YEARS       ESTIMATED         EXPENSES      RETIREMENT(2)
                              OF SERVICE AT      PERCENTAGE OF        BY ALL         FROM ALL
NAME OF                         RETIREMENT          ELIGIBLE         ADOPTING        ADOPTING
INDEPENDENT TRUSTEE            (MAXIMUM 10)       COMPENSATION         FUNDS           FUNDS
- ---------------------------  ----------------   ----------------   -------------   -------------
                                                                       
Michael Bozic..............            10              50.0%         $ 20,147        $ 51,325
Edwin J. Garn..............            10              50.0            27,772          51,325
John R. Haire..............            10              50.0            46,952         129,550
Dr. Manuel H. Johnson......            10              50.0            10,926          51,325
Michael E. Nugent..........            10              50.0            19,217          51,325
John L. Schroeder..........             8              41.7            38,700          42,771

    
 
- ---------------
(1)  An Eligible Trustee may elect  alternate payments of his or her  retirement
    benefits  based upon the  combined life expectancy  of such Eligible Trustee
    and his or her spouse on the date of such Eligible Trustee's retirement. The
    amount estimated to be payable under  this method, through the remainder  of
    the  later of  the lives of  such Eligible  Trustee and spouse,  will be the
    actuarial equivalent  of  the Regular  Benefit.  In addition,  the  Eligible
    Trustee  may elect that the surviving  spouse's periodic payment of benefits
    will be equal  to either 50%  or 100%  of the previous  periodic amount,  an
    election  that, respectively,  increases or decreases  the previous periodic
    amount so that the  resulting payments will be  the actuarial equivalent  of
    the Regular Benefit.
 
(2)   Based on  current levels of  compensation. Amount of  annual benefits also
    varies depending on the Trustee's elections described in Footnote (1) above.
 
    THE BOARD  UNANIMOUSLY RECOMMENDS  THAT  SHAREHOLDERS VOTE  FOR ALL  OF  THE
TRUSTEES NOMINATED FOR ELECTION.
 
       (2) APPROVAL OR DISAPPROVAL OF NEW INVESTMENT MANAGEMENT AGREEMENT
 
BACKGROUND
 
    InterCapital currently serves as investment manager of the Trust pursuant to
an  investment management agreement  entered into by  the Trust and InterCapital
(the "Current Agreement"), and in that capacity provides investment advisory and
certain other services to the  Trust. InterCapital is a wholly-owned  subsidiary
of DWDC. The approval of a new investment management agreement between the Trust
and  InterCapital (the "New  Agreement") is being sought  in connection with the
proposed merger of Morgan  Stanley Group Inc. ("Morgan  Stanley") and DWDC  (the
"Merger").
 
INFORMATION CONCERNING MORGAN STANLEY
 
   
    Morgan Stanley and various of its directly or indirectly owned subsidiaries,
including  Morgan  Stanley  &  Co.  Incorporated  ("Morgan  Stanley  &  Co."), a
registered  broker-dealer   and   investment   adviser,   and   Morgan   Stanley
International,  provide a  wide range of  financial services on  a global basis.
Their principal  businesses include  securities underwriting,  distribution  and
trading;  merger, acquisition,  restructuring, real estate,  project finance and
other  corporate  finance  advisory  activities;  merchant  banking  and   other
principal  investment activities;  stock brokerage and  research services; asset
management; the trading of foreign exchange and commodities on a broad range  of
asset  categories, rates and  indices; and global  custody, securities clearance
services and securities lending.
    
 
                                       10

THE MERGER
 
    Pursuant to the terms of the Merger, Morgan Stanley will be merged with  and
into  DWDC  with the  surviving  corporation to  be  named Morgan  Stanley, Dean
Witter, Discover  & Co.  Following the  Merger, InterCapital  will be  a  direct
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
 
   
    Under  the terms of  the Merger, each  share of Morgan  Stanley common stock
will be converted into the right to receive 1.65 shares of DWDC common stock and
each issued and outstanding share of  DWDC common stock will remain  outstanding
and  will represent  one share  of Morgan Stanley,  Dean Witter,  Discover & Co.
common stock.  Following  the Merger,  Morgan  Stanley's shareholders  will  own
approximately  45% and  DWDC's shareholders  will own  approximately 55%  of the
outstanding shares of common  stock of Morgan Stanley,  Dean Witter, Discover  &
Co.
    
 
   
    The  Board of Directors of Morgan Stanley,  Dean Witter, Discover & Co. will
consist of fourteen members,  two of which will  be Morgan Stanley insiders  and
two  of which will be DWDC insiders. The remaining ten directors will be outside
directors, with Morgan Stanley  and DWDC each designating  five of the ten.  The
Chairman  and Chief Executive Officer of Morgan Stanley, Dean Witter, Discover &
Co. will be Philip J.  Purcell who is the  current Chairman and Chief  Executive
Officer  of DWDC. The  President and Chief Operating  Officer of Morgan Stanley,
Dean Witter, Discover  & Co. will  be the current  President of Morgan  Stanley,
John Mack.
    
 
   
    The Merger is expected to be completed in mid-1997 and is subject to certain
closing  conditions, including certain regulatory  approvals and the approval of
shareholders of both DWDC and Morgan Stanley.
    
 
APPROVAL OF NEW INVESTMENT MANAGEMENT AGREEMENT
 
    In order to assure continuity of investment management services to the Trust
after the Merger, the Board met in person for the purpose of considering whether
it would be in  the best interests  of the Trust and  its Shareholders to  enter
into  a New Agreement between  the Trust and the  Investment Manager which would
become effective upon the later of Shareholder approval of the New Agreement  or
consummation  of the Merger. At its meeting, and for the reasons discussed below
(see "The Board's Consideration"), the Board, including each of the  Independent
Trustees, unanimously approved the New Agreement and recommended its approval by
Shareholders.
 
    THE  TERMS  OF  THE  NEW  AGREEMENT, INCLUDING  FEES  PAYABLE  BY  THE TRUST
THEREUNDER, ARE IDENTICAL,  IN ALL MATERIAL  RESPECTS, TO THOSE  OF THE  CURRENT
AGREEMENT,  EXCEPT FOR THE  DATES OF EFFECTIVENESS AND  EXPIRATION. The terms of
the  Current  Agreement  are  fully  described  under  "The  Current  Investment
Management Agreement" below. If approved by Shareholders, the New Agreement will
continue in effect for an initial term expiring April 30, 1999 and will continue
in  effect from year to  year thereafter if such  continuance is approved by the
Board or by a majority of  the outstanding voting securities (as defined  below)
of  the Trust and, in either event, by the  vote cast in person of a majority of
the Independent Trustees.  In the event  that Shareholders of  the Trust do  not
approve  a New Agreement,  the Current Agreement  will remain in  effect and the
Board will take such action, if any, as it deems to be in the best interests  of
the  Trust and its  Shareholders, which may  include proposing that Shareholders
approve an agreement in lieu of the New Agreement. In the event that the  Merger
is  not consummated, the Investment Manager will continue to provide services to
the Trust in accordance with the terms of the Current Agreement for such periods
as may be approved at least annually  by the Board, including a majority of  the
Independent Trustees of the Trust.
 
                                       11

REQUIRED VOTE
 
    The  New Agreement cannot be implemented  unless approved at the Meeting, or
any adjournment thereof, by a majority  of the outstanding voting securities  of
the  Trust. Such a majority means the affirmative vote of the holders of (a) 67%
or more of  the shares  of the  Trust present,  in person  or by  proxy, at  the
Meeting,  if  the holders  of more  than 50%  of the  outstanding shares  are so
present, or (b) more than 50% of the outstanding shares of the Trust,  whichever
is less.
 
    THE  BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
NEW INVESTMENT MANAGEMENT AGREEMENT.
 
THE BOARD'S CONSIDERATION
 
    At a special  meeting of the  Committee of the  Independent Trustees of  the
Trust  held on February 20,  1997, at which each  of the Independent Trustees of
the Trust was present, and a meeting of the full Board on February 21, 1997, the
Trustees evaluated the New Agreement (the form of which is attached hereto as an
Exhibit). Prior to and  during the meeting,  the Independent Trustees  requested
and  received all information they deemed  necessary to enable them to determine
whether the  New  Agreement is  in  the best  interests  of the  Trust  and  its
Shareholders.   They  were  assisted  in   their  review  and  deliberations  by
independent legal counsel. In determining whether to approve the New  Agreement,
the  Trustees assessed the implications of the Merger for the Investment Manager
and its ability to continue to provide  services to the Trust of the same  scope
and  quality as are presently provided.  In particular, the Trustees inquired as
to the impact of the Merger  on the Investment Manager's personnel,  management,
facilities  and financial  capabilities and  received assurances  in this regard
from senior management of DWDC and the Investment Manager that the Merger  would
not adversely affect the Investment Manager's ability to fulfill its obligations
under  its  agreement with  the Trust  or to  operate its  business in  a manner
consistent with past practices. In addition, the Trustees considered the effects
of the Investment Manager and Morgan Stanley becoming affiliated persons of each
other. Following  the Merger,  the  1940 Act  will  prohibit or  impose  certain
conditions  on the ability of  the Trust to engage  in certain transactions with
Morgan Stanley and  its affiliates.  For example, absent  exemptive relief,  the
Trust will be prohibited from purchasing securities from Morgan Stanley & Co., a
wholly-owned  broker-dealer  subsidiary of  Morgan  Stanley, in  transactions in
which Morgan Stanley & Co. acts as principal, and the Trust will have to satisfy
certain conditions in order to engage in securities transactions in which Morgan
Stanley & Co.  acts as a  broker or  to purchase securities  in an  underwritten
offering  in  which  Morgan  Stanley  & Co.  acts  as  an  underwriter.  In this
connection, senior  management  of the  Investment  Manager represented  to  the
Trustees  that they do not believe these  prohibitions or conditions will have a
material effect on the management or performance of the Trust.
 
    The Trustees also  considered that the  New Agreement is  identical, in  all
material   respects,  to  the  Current  Agreement   (other  than  the  dates  of
effectiveness and termination).
 
    Based upon the Trustees'  review and the evaluations  of the materials  they
received,  and after consideration  of all factors deemed  relevant to them, the
Trustees, including all  of the  Independent Trustees, determined  that the  New
Agreement  is  in  the  best  interests  of  the  Trust  and  its  Shareholders.
ACCORDINGLY, THE BOARD, INCLUDING ALL OF THE INDEPENDENT TRUSTEES, APPROVED  THE
NEW AGREEMENT AND VOTED TO RECOMMEND APPROVAL BY SHAREHOLDERS OF THE TRUST.
 
THE CURRENT INVESTMENT MANAGEMENT AGREEMENT
 
    The  Current Agreement provides that the Investment Manager shall obtain and
evaluate such information  and advice  relating to the  economy, securities  and
commodity    markets   and    securities   and    commodities   as    it   deems
 
                                       12

necessary or useful  to discharge its  duties under the  Current Agreement,  and
that  it shall continuously supervise the management  of the assets of the Trust
in a manner consistent with the investment objectives and policies of the  Trust
and subject to such other limitations and directions as the Board may, from time
to time, prescribe.
 
    The   Current  Agreement   provides  that   the  Investment   Manager  shall
continuously manage the  assets of  the Trust in  a manner  consistent with  the
Trust's  investment objectives.  The Investment  Manager has  authority to place
orders for the purchase and sale of portfolio securities on behalf of the  Trust
without  prior  approval of  the Trustees.  The  Trustees review  the investment
portfolio at their regular  meetings. In addition,  the Investment Manager  pays
the compensation of the officers of the Trust and provides the Trust with office
space  and  equipment  and  such  clerical  help  and  bookkeeping  services and
telephone service,  heat,  light,  power and  other  utilities.  The  Investment
Manager  also pays for the services of  personnel in connection with the pricing
of the Trust's shares and the preparation of prospectuses, proxy statements  and
reports  required to be filed with  the Federal and state securities commissions
(except insofar as  the participation or  assistance of independent  accountants
and  attorneys  is,  in the  opinion  of  the Investment  Manager,  necessary or
desirable). In return  for its investment  services and the  expenses which  the
Investment  Manager  assumes under  the Current  Agreement,  the Trust  pays the
Investment Manager compensation which is computed weekly and payable monthly and
which is determined by applying the following annual rates to the Trust's weekly
net assets: 0.75% of the portion of the average weekly net assets not  exceeding
$250  million; 0.60% of the portion of  average weekly net assets exceeding $250
million and not exceeding $500 million;  0.50% of the portion of average  weekly
net  assets exceeding $500 million and not  exceeding $750 million; 0.40% of the
portion of average weekly net assets exceeding $750 million and not exceeding $1
billion; and 0.30%  of the  portion of average  weekly net  assets exceeding  $1
billion.  This fee is higher than that  paid by most other investment companies.
Pursuant to the Current Agreement, the  Trust accrued to the Investment  Manager
total  compensation of $610,239  during the fiscal year  ended January 31, 1997.
The net assets of the Trust totalled $78,706,900 at January 31, 1997.
 
    Under the Current Agreement, the Trust is obligated to bear all of the costs
and expenses  of  its  operation,  except  those  specifically  assumed  by  the
Investment  Manager, including, without limitation:  charges and expenses of any
registrar, custodian or depository appointed by the Trust for the safekeeping of
its cash, portfolio securities or commodities and other property, and any  stock
transfer   or  dividend  agent  or  agents  appointed  by  the  Trust;  brokers'
commissions chargeable  to the  Trust in  connection with  portfolio  securities
transactions  to which the Trust is a  party; all taxes, including securities or
commodities issuance  and transfer  taxes,  and fees  payable  by the  Trust  to
Federal,  state or other governmental agencies;  costs and expenses of engraving
or printing  certificates  representing  shares  of the  Trust;  all  costs  and
expenses  in connection with registration and maintenance of registration of the
Trust and of its shares with the Securities and Exchange Commission and  various
states  and  other  jurisdictions  (including filing  fees  and  legal  fees and
disbursements of  counsel) and  the  costs and  expense of  preparing,  printing
(including  typesetting) and  distributing prospectuses  for such  purposes; all
expenses of Shareholders' and Trustees' meetings and of preparing, printing  and
mailing  proxy statements and reports to  Shareholders; fees and travel expenses
of Trustees or members of any advisory board or committee who are not  employees
of  the Investment Manager or any corporate affiliate of the Investment Manager;
all expenses incident to  the payment of any  dividend or distribution  program;
charges  and expenses of  any outside pricing services;  charges and expenses of
legal counsel, including counsel to the  Independent Trustees of the Trust,  and
independent accountants in connection with any matter relating to the Trust (not
including  compensation  or expenses  of  attorneys employed  by  the Investment
Manager); membership dues  of industry associations;  interest payable on  Trust
borrowings;  fees and expenses incident to the  listing of the Trust's shares on
any stock  exchange;  postage;  insurance  premiums  on  property  or  personnel
(including   officers  and   Trustees)  of   the  Trust   which  inure   to  its
 
                                       13

benefit; extraordinary expenses  (including, but not  limited to, legal  claims,
liabilities,  litigation costs and any indemnification related thereto); and all
other charges and costs  of the Trust's  operations unless otherwise  explicitly
provided in the Current Agreement.
 
    The  Current Agreement  was initially approved  by the Board  on October 30,
1992, and  by the  Shareholders at  a Special  Meeting of  Shareholders held  on
January 13, 1993. The Current Agreement was last approved by the Shareholders as
a routine matter at their Annual Meeting held on June 27, 1996.
 
   
    The Current Agreement had an initial term ending April 30, 1994 and provides
that, after the initial period of effectiveness, it will continue in effect from
year  to year thereafter provided such continuance is approved at least annually
by vote of a  majority, as defined  in the 1940 Act,  of the outstanding  voting
securities  of the Trust or by the Trustees  of the Trust, and, in either event,
by the vote cast in person by a majority of the Trustees who are not parties  to
the  Current Agreement or "interested persons" of  any such party (as defined in
the 1940 Act) at a  meeting called for the purpose  of voting on such  approval.
The  Current  Agreement's  most recent  continuation  until April  30,  1997 was
approved by the Trustees, including a majority of the Independent Trustees at  a
Meeting  of  the Trustees  held on  April 17,  1996, called  for the  purpose of
approving the Current Agreement.
    
 
    The Current Agreement also provides that it may be terminated at a any  time
by  the Investment Manager, the Trustees of the Trust or by a vote of a majority
of the outstanding voting securities of the Trust, in each instance without  the
payment  of any penalty, on thirty days' notice and will automatically terminate
upon any assignment.
 
    The administrative  services  called for  under  the Current  Agreement  are
performed  by DWSC,  a wholly-owned  subsidiary of  InterCapital, pursuant  to a
Services Agreement between InterCapital and DWSC.
 
THE INVESTMENT MANAGER
 
    Dean  Witter   InterCapital  Inc.   is  the   Trust's  investment   manager.
InterCapital maintains its offices at Two World Trade Center, New York, New York
10048.  InterCapital, which  was incorporated in  July, 1992,  is a wholly-owned
subsidiary of DWDC, a balanced financial services organization providing a broad
range of nationally marketed credit and investment products.
 
    The Principal Executive  Officer and  Directors of  InterCapital, and  their
principal occupations, are:
 
    Philip  J. Purcell, Chairman  of the Board of  Directors and Chief Executive
Officer of DWDC  and DWR and  Director of InterCapital,  DWSC and  Distributors;
Richard  M.  DeMartini, President  and Chief  Operating  Officer of  Dean Witter
Capital, Executive Vice  President of  DWDC and Director  of DWR,  Distributors,
InterCapital,  DWSC and  DWTC; James F.  Higgins, President  and Chief Operating
Officer of Dean Witter Financial, Executive Vice President of DWDC and  Director
of  DWR,  Distributors, InterCapital,  DWSC  and DWTC;  Charles  A. Fiumefreddo,
Executive Vice  President  and  Director  of  DWR,  Chairman  of  the  Board  of
Directors,  Chief  Executive  Officer  and Director  of  InterCapital,  DWSC and
Distributors and  Chairman of  the  Board of  Directors  and Director  of  DWTC;
Christine A. Edwards, Executive Vice President, Secretary and General Counsel of
DWDC,  Executive Vice President, Secretary, General Counsel and Director of DWR,
Executive Vice  President,  Secretary,  Chief  Legal  Officer  and  Director  of
Distributors  and Director  of InterCapital and  DWSC; and  Thomas C. Schneider,
Executive Vice President and Chief Financial Officer of DWDC and Executive  Vice
President,   Chief  Financial   Officer  and  Director   of  DWR,  Distributors,
InterCapital and DWSC.
 
    The business address of the foregoing Directors and Executive Officer is Two
World Trade Center, New York, New York 10048. DWDC has its offices at Two  World
Trade Center, New York, New York 10048.
 
                                       14

   
    InterCapital  and  its  wholly-owned  subsidiary,  DWSC,  serve  in  various
investment management,  advisory, management  and administrative  capacities  to
investment  companies and pension  plans and other  institutional and individual
investors. The Appendix  lists the investment  companies for which  InterCapital
provides  investment management or  investment advisory services  and which have
similar investment objectives  to that  of the Trust,  and sets  forth the  fees
payable by such companies, including the Trust, and their net assets as of March
12,  1997. DWSC also  has its offices at  Two World Trade  Center, New York, New
York 10048.
    
 
   
    During the fiscal year  ended January 31, 1997,  the Trust accrued to  DWTC,
the  Trust's Transfer Agent and an affiliate of the Investment Manager, transfer
agency fees of $43,845. After the consummation of the Merger and approval of the
New Agreement, DWTC will continue to provide  the same services to the Trust  as
are being provided currently.
    
 
AFFILIATED BROKER
 
   
    Because DWR and InterCapital are under the common control of DWDC, DWR is an
affiliated  broker of the Trust. For the fiscal year ended January 31, 1997, the
Trust paid no brokerage commissions to DWR.
    
 
     (3) RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT ACCOUNTANTS
 
    The Trustees have unanimously selected the  firm of Price Waterhouse LLP  as
the Trust's independent accountants for the fiscal year ending January 31, 1998.
Price  Waterhouse LLP has  been the independent accountants  for the Trust since
its inception, and has no direct or indirect financial interest in the Trust.
 
    A representative of Price  Waterhouse LLP is expected  to be present at  the
Meeting  and will be available to make a statement and to respond to appropriate
questions of Shareholders.
 
    The affirmative vote of the holders of a majority of the shares  represented
and  entitled to vote at the Annual  Meeting is required for ratification of the
selection of Price Waterhouse LLP as the independent accountants for the Trust.
 
    THE  TRUSTEES  UNANIMOUSLY  RECOMMEND  THAT  THE  SHAREHOLDERS  RATIFY   THE
SELECTION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT ACCOUNTANTS FOR THE TRUST.
 
                             ADDITIONAL INFORMATION
 
    In  the event  that the  necessary quorum to  transact business  or the vote
required to approve or reject any proposal  is not obtained at the Meeting,  the
persons named as proxies may propose one or more adjournments of the Meeting for
a total of not more than 60 days in the aggregate to permit further solicitation
of  proxies.  Any such  adjournment  will require  the  affirmative vote  of the
holders of a majority of the Trust's shares present in person or by proxy at the
Meeting. The persons  named as proxies  will vote in  favor of such  adjournment
those  proxies which they are  entitled to vote in favor  of Proposal 2 and will
vote against any  such adjournment those  proxies required to  be voted  against
that proposal.
 
    Abstentions  and, if applicable, broker "non-votes"  will not count as votes
in favor of any of the proposals,  and broker "non-votes" will not be deemed  to
be  present  at the  Meeting for  purposes of  determining whether  a particular
proposal to be voted upon has been approved. Broker "non-votes" are shares  held
in  street name for which  the broker indicates that  instructions have not been
received from the beneficial  owners or other persons  entitled to vote and  for
which the broker does not have discretionary voting authority.
 
                                       15

                             SHAREHOLDERS PROPOSALS
 
   
    Proposals  of security holders  intended to be presented  at the next Annual
Meeting of Shareholders  must be received  no later than  November 25, 1997  for
inclusion  in the  proxy statement  for that meeting.  The mere  submission of a
proposal does  not  guarantee  its  inclusion in  the  proxy  materials  or  its
presentation  at the  meeting. Certain rules  under the  federal securities laws
must be met.
    
 
                            REPORTS TO SHAREHOLDERS
 
    THE TRUST'S ANNUAL REPORT, FOR THE  FISCAL YEAR ENDED JANUARY 31, 1996,  AND
ITS  MOST  RECENT SEMI-ANNUAL  REPORT SUCCEEDING  THE  ANNUAL REPORT,  HAVE BEEN
PREVIOUSLY SENT TO SHAREHOLDERS  AND ARE AVAILABLE  WITHOUT CHARGE UPON  REQUEST
FROM  ADRIENNE  RYAN-PINTO AT  DEAN WITTER  TRUST COMPANY,  HARBORSIDE FINANCIAL
CENTER, PLAZA  TWO, JERSEY  CITY, NEW  JERSEY 07311  (TELEPHONE  1-800-869-NEWS)
(TOLL-FREE).
 
                          INTEREST OF CERTAIN PERSONS
 
    DWDC,  InterCapital, DWR,  DWSC and  certain of  their respective Directors,
Officers, and employees, including persons who  are Trustees or Officers of  the
Trust,  may be deemed to have an  interest in certain of the proposals described
in this Proxy Statement to the extent  that certain of such companies and  their
affiliates  have contractual and other arrangements, described elsewhere in this
Proxy Statement, pursuant to which they are paid fees by the Trust, and  certain
of  those individuals  are compensated for  performing services  relating to the
Trust and may also own  shares of DWDC. Such companies  and persons may thus  be
deemed to derive benefits from the approvals by Shareholders of such proposals.
 
                                 OTHER BUSINESS
 
    The management of the Trust knows of no other matters which may be presented
at  the Meeting. However, if any matters  not now known properly come before the
Meeting, it is the intention of the persons named in the enclosed form of proxy,
or their substitutes, to vote all shares  that they are entitled to vote on  any
such matter, utilizing such proxy in accordance with their best judgment on such
matters.
 
                        By Order of the Board of Trustees
                                   BARRY FINK
                                    SECRETARY
 
                                       16

                                                                        APPENDIX
 
    InterCapital  serves  as  investment  manager to  the  Trust  and  the other
investment companies listed  below which have  similar investment objectives  to
those  of the Trust. Set forth  below is a chart showing  the net assets of each
such investment company as of March 12, 1997 and the investment management  fees
rate(s) applicable to such investment company.
 
   


                                                                                       CURRENT INVESTMENT
                                                                                     MANAGEMENT FEE RATE(S)
                                                                  NET ASSETS            AS A PERCENTAGE
                                                                AS OF 03/12/97           OF NET ASSETS
                                                               ----------------  ------------------------------
                                                                        
  1.  DEAN WITTER HIGH YIELD SECURITIES INC.*................  $   472,422,555   0.50% on assets up to $500
                                                                                 million, scaled down at
                                                                                 various asset levels to 0.30%
                                                                                 on assets over $3 billion
  2.  DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST*..........  $ 6,138,047,889   0.50% on assets up to $1
                                                                                 billion, scaled down at
                                                                                 various asset levels to 0.30%
                                                                                 on assets over $12.5 billion
  3.  DEAN WITTER CONVERTIBLE SECURITIES TRUST*..............  $   258,071,153   0.60% on assets up to $750
                                                                                 million, scaled down at
                                                                                 various asset levels to 0.425%
                                                                                 on assets over $3 billion
  4.  DEAN WITTER FEDERAL SECURITIES TRUST*..................  $   664,434,512   0.55% on assets up to $1
                                                                                 billion, scaled down at
                                                                                 various asset levels to 0.35%
                                                                                 on assets over $12.5 billion
  5.  INTERCAPITAL INCOME SECURITIES INC.**..................  $   212,194,831   0.50%
  6.  HIGH INCOME ADVANTAGE TRUST**..........................  $   151,432,410   0.75% on assets up to $250
                                                                                 million, scaled down at
                                                                                 various asset levels to 0.30%
                                                                                 on assets over $1 billion
  7.  HIGH INCOME ADVANTAGE TRUST II**.......................  $   202,120,811   0.75% on assets up to $250
                                                                                 million, scaled down at
                                                                                 various asset levels to 0.30%
                                                                                 on assets over $1 billion
  8.  HIGH INCOME ADVANTAGE TRUST III**......................  $    78,703,844   0.75% on assets up to $250
                                                                                 million, scaled down at
                                                                                 various asset levels to 0.30%
                                                                                 on assets over $1 billion
  9.  DEAN WITTER INTERMEDIATE INCOME SECURITIES*............  $   183,322,983   0.60% on assets up to $500
                                                                                 million, scaled down at
                                                                                 various asset levels to 0.30%
                                                                                 on assets over $1 billion
 10.  DEAN WITTER WORLD WIDE INCOME TRUST*...................  $   106,393,288   0.75% on assets up to $250
                                                                                 million, scaled down at
                                                                                 various asset levels to 0.30%
                                                                                 on assets over $1 billion
 11.  DEAN WITTER GOVERNMENT INCOME TRUST**..................  $   425,720,030   0.60%
 12.  DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.*........  $    76,976,109   0.55% on assets up to $500
                                                                                 million and 0.50% on assets
                                                                                 over $500 million
 13.  DEAN WITTER PREMIER INCOME TRUST*......................  $    15,604,354   0.50% (of which 40% is paid to
                                                                                 a Sub-Adviser)
 14.  DEAN WITTER SHORT-TERM U.S. TREASURY TRUST*............  $   255,026,002   0.35%
 15.  DEAN WITTER DIVERSIFIED INCOME TRUST*..................  $   825,332,503   0.40%

    
 
                                      A-1

   


                                                                                       CURRENT INVESTMENT
                                                                                     MANAGEMENT FEE RATE(S)
                                                                  NET ASSETS            AS A PERCENTAGE
                                                                AS OF 03/12/97           OF NET ASSETS
                                                               ----------------  ------------------------------
                                                                        
 16.  DEAN WITTER SHORT-TERM BOND FUND*......................  $    39,265,837   0.70%(1)
 17.  DEAN WITTER HIGH INCOME SECURITIES*....................  $ 1,105,732,108   0.50% on assets up to $500
                                                                                 million and 0.425% on assets
                                                                                 over $500 million.
 18.  PRIME INCOME TRUST**...................................  $ 1,133,529,314   0.90% on assets up to $500
                                                                                 million and 0.85% on assets
                                                                                 over $500 million
 19.  DEAN WITTER BALANCED INCOME FUND*......................  $    50,991,701   0.60%
 
 20.  DEAN WITTER RETIREMENT SERIES:*
      (a) U.S. GOVERNMENT SECURITIES SERIES..................  $    10,596,158   0.65% (2)
      (b) INTERMEDIATE INCOME SECURITIES SERIES..............  $     2,261,816   0.65% (2)
 
 21.  DEAN WITTER VARIABLE INVESTMENT SERIES:***
      (a) QUALITY INCOME PLUS PORTFOLIO......................  $   459,554,792   0.50% on assets up to $500
                                                                                 million and 0.45% on assets
                                                                                 over $500 million
      (b) HIGH YIELD PORTFOLIO...............................  $   277,126,804   0.50%
 
 22.  DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES:***
      (a) DIVERSIFIED INCOME PORTFOLIO.......................  $    37,415,339   0.40%
      (b)NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO......  $     4,484,769   0.65% (of which 40% is paid to
                                                                                 a Sub-Adviser)
 23.  DEAN WITTER INTERMEDIATE TERM U.S. TREASURY TRUST*.....  $     1,962,920   0.35%(3)

    
 
- ---------------
 
  * Open-end investment company.
 
 ** Closed-end investment company.
 
***  Open-end investment  company offered  only to  life insurance  companies in
    connection with variable annuity and/or variable life insurance contracts.
 
(1) InterCapital has undertaken, from January 1, 1997 through April 30, 1997, to
    assume all operating expenses  of Dean Witter  Short-Term Bond Fund  (except
    for  any brokerage fees) and  to waive the compensation  provided for in its
    investment management agreement with that company.
 
(2) InterCapital has undertaken, until July 31, 1997, to continue to assume  all
    operating  expenses of the  Series of Dean  Witter Retirement Series (except
    for brokerage fees and  a portion of organizational  expenses) and to  waive
    the  compensation  provided for  each  Series in  its  investment management
    agreement with that  company in respect  of each Series  to the extent  that
    such  expenses and  compensation on an  annualized basis exceed  1.0% of the
    average daily net assets of the pertinent Series.
 
   
(3) InterCapital has undertaken to assume all operating expenses of Dean  Witter
    Intermediate  Term  U.S.  Treasury  Trust (except  for  any  12b-1  fees and
    brokerage expenses)  and  to waive  the  compensation provided  for  in  its
    investment  management agreement with  that company until  such time as that
    company has $50  million of net  assets or until  March 27, 1997,  whichever
    occurs first.
    
 
                                      A-2

                                                                      EXHIBIT
 
   
                  FORM OF NEW INVESTMENT MANAGEMENT AGREEMENT
    
 
    AGREEMENT  made as of the     day  of            , 1997  by and between High
Income Advantage Trust III, an unincorporated business trust organized under the
laws of the Commonwealth of  Massachusetts (hereinafter called the "Fund"),  and
Dean  Witter InterCapital Inc.,  a Delaware corporation  (hereinafter called the
"Investment Manager"):
 
    WHEREAS, The  Fund  is  engaged  in  business  as  a  closed-end  management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
 
    WHEREAS, The Investment Manager is registered as an investment adviser under
the  Investment Advisers Act of  1940, and engages in  the business of acting as
investment adviser; and
 
    WHEREAS, The  Fund  desires  to  retain the  Investment  Manager  to  render
management  and investment advisory services in the  manner and on the terms and
conditions hereafter set forth; and
 
    WHEREAS, The Investment Manager desires  to be retained to perform  services
on said terms and conditions:
 
    Now, Therefore, this Agreement
 
                              W I T N E S S E T H:
 
that  in  consideration of  the premises  and  the mutual  covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
 
     1. The Fund  hereby retains  the Investment  Manager to  act as  investment
manager  of  the  Fund and,  subject  to  the supervision  of  the  Trustees, to
supervise the  investment  activities of  the  Fund as  hereinafter  set  forth.
Without  limiting the generality of the  foregoing, the Investment Manager shall
obtain and  evaluate  such  information  and advice  relating  to  the  economy,
securities  and commodities markets  and securities and  commodities as it deems
necessary or useful to discharge its duties hereunder; shall continuously manage
the assets of the Fund in a manner consistent with the investment objectives and
policies of  the Fund;  shall determine  the securities  and commodities  to  be
purchased,  sold or  otherwise disposed of  by the  Fund and the  timing of such
purchases, sales and dispositions; and shall take such further action, including
the placing of purchase and sale orders on behalf of the Fund, as the Investment
Manager shall deem necessary or  appropriate. The Investment Manager shall  also
furnish  to  or place  at  the disposal  of the  Fund  such of  the information,
evaluations, analyses  and opinions  formulated or  obtained by  the  Investment
Manager  in the  discharge of  its duties as  the Fund  may, from  time to time,
reasonably request.
 
     2. The Investment Manager  shall, at its own  expense, maintain such  staff
and  employ or retain such  personnel and consult with  such other persons as it
shall from time to time determine to  be necessary or useful to the  performance
of  its obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Investment Manager shall be deemed  to
include  persons employed  or otherwise  retained by  the Investment  Manager to
furnish statistical and  other factual data,  advice regarding economic  factors
and  trends, information with respect  to technical and scientific developments,
and such other information, advice and assistance as the Investment Manager  may
desire. The Investment Manager shall, as agent for the Fund, maintain the Fund's
records and books of account (other than those maintained by the Fund's transfer
agent,  registrar, custodian and other agencies).  All such books and records so
maintained shall be  the property of  the Fund and,  upon request therefor,  the
Investment  Manager shall surrender to the Fund such of the books and records so
requested.
 
                                      EX-1

     3. The Fund will, from time to time, furnish or otherwise make available to
the Investment  Manager  such  financial reports,  proxy  statements  and  other
information  relating to the business and affairs  of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and  obligations
hereunder.
 
     4.  The Investment Manager shall bear  the cost of rendering the investment
management and supervisory services to be performed by it under this  Agreement,
and  shall,  at  its own  expense,  pay  the compensation  of  the  officers and
employees, if any, of  the Fund, and provide  such office space, facilities  and
equipment  and such  clerical help  and bookkeeping  services as  the Fund shall
reasonably require in the conduct of its business. The Investment Manager  shall
also  bear the cost of telephone service, heat, light, power and other utilities
provided to the Fund.
 
     5. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund,  including  without  limitation:  the  charges  and  expenses  of  any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of  its cash,  portfolio securities or  commodities and other  property, and any
stock transfer  or dividend  agent or  agents appointed  by the  Fund;  brokers'
commissions  chargeable to the Fund in connection with portfolio transactions to
which the  Fund is  a  party; all  taxes,  including securities  or  commodities
issuance  and transfer taxes, and fees payable  by the Fund to federal, state or
other governmental  agencies; the  cost  and expense  of engraving  or  printing
certificates  representing  shares  of  the  Fund;  all  costs  and  expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the  Securities and Exchange Commission  and various states  and
other  jurisdictions (including filing fees and  legal fees and disbursements of
counsel  and  the  costs  and  expenses  of  preparation,  printing   (including
typesetting)  and distributing prospectuses for  such purposes); all expenses of
shareholders' and  Trustees' meetings  and of  preparing, printing  and  mailing
proxy  statements  and  reports to  shareholders;  fees and  travel  expenses of
Trustees or members of any advisory board or committee who are not employees  of
the Investment Manager or any corporate affiliate of the Investment Manager; all
expenses  incident  to  the payment  of  any dividend  or  distribution program;
charges and  expenses of  any outside  service used  for pricing  of the  Fund's
shares; charges and expenses of legal counsel, including counsel to the Trustees
of  the Fund who are not interested persons  (as defined in the Act) of the Fund
or the Investment Manager,  and of independent  accountants, in connection  with
any  matter  relating to  the Fund;  membership  dues of  industry associations;
interest payable on Fund borrowings; fees  and expenses incident to the  listing
of  the  Fund's shares  on any  stock exchange;  postage; insurance  premiums on
property or personnel (including officers and Trustees) of the Fund which  inure
to  its benefit;  extraordinary expenses (including,  but not  limited to, legal
claims and  liabilities and  litigation costs  and any  indemnification  related
thereto);  and  all  other charges  and  costs  of the  Fund's  operation unless
otherwise explicitly provided herein.
 
     6. For  the services  to be  rendered, the  facilities furnished,  and  the
expenses assumed by the Investment Manager, the Fund shall pay to the Investment
Manager  monthly compensation determined by  applying the following annual rates
to the Fund's average  weekly net assets:  0.75% of the  portion of the  average
weekly  net assets not exceeding  $250 million; 0.60% of  the portion of average
weekly net assets exceeding $250 million  and not exceeding $500 million;  0.50%
of  the portion  of average  weekly net  assets exceeding  $500 million  and not
exceeding $750  million; 0.40%  of  the portion  of  average weekly  net  assets
exceeding $750 million and not exceeding $1 billion; and 0.30% of the portion of
average weekly net assets exceeding $1 billion. Except as hereinafter set forth,
compensation  under this  Agreement shall be  calculated and  accrued weekly and
paid monthly by applying the  annual rates to the  average weekly net assets  of
the  Fund determined as of the  close of the last business  day of each week. At
the  request  of  the  Investment  Manager,  compensation  hereunder  shall   be
calculated  and accrued at  more frequent intervals in  a manner consistent with
the calculation of fees on a weekly
 
                                      EX-2

basis. If this  Agreement becomes  effective subsequent to  the first  day of  a
month  or shall terminate before the last  day of a month, compensation for that
part of the  month this Agreement  is in effect  shall be prorated  in a  manner
consistent with the calculation of the fees as set forth above.
 
     7.  The Investment Manager will use its best efforts in the supervision and
management of  the investment  activities of  the Fund,  but in  the absence  of
willful  misfeasance, bad faith,  gross negligence or  reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund or
any of its investors for any error of judgment or mistake of law or for any  act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors.
 
     8. Nothing contained in this Agreement shall prevent the Investment Manager
or  any affiliated  person of the  Investment Manager from  acting as investment
adviser or manager for any  other person, firm or  corporation and shall not  in
any  way bind or restrict  the Investment Manager or  any such affiliated person
from buying, selling  or trading  any securities  or commodities  for their  own
accounts  or for the account  of others for whom they  may be acting. Nothing in
this Agreement shall  limit or  restrict the right  of any  Trustee, officer  or
employee  of the Investment Manager to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of  any
other business whether of a similar or dissimilar nature.
 
     9. This Agreement shall remain in effect until April 30, 1999 and from year
to  year thereafter provided  such continuance is approved  at least annually by
the vote of holders  of a majority,  as defined in the  Act, of the  outstanding
voting  securities of the Fund or by the Board of Trustees of the Fund; provided
that in either event such continuance is also approved annually by the vote of a
majority of the Trustees of  the Fund who are not  parties to this Agreement  or
"interested  persons" (as defined in the Act) of any such party, which vote must
be cast  in person  at  a meeting  called  for the  purpose  of voting  on  such
approval;  provided, however, that (a) the Fund may, at any time and without the
payment of  any penalty,  terminate  this Agreement  upon thirty  days'  written
notice to the Investment Manager, either by majority vote of the Trustees of the
Fund  or by the vote  of a majority of the  outstanding voting securities of the
Fund; (b)  this  Agreement shall  immediately  terminate  in the  event  of  its
assignment  (to the extent required by the  Act and the rules thereunder) unless
such automatic terminations  shall be  prevented by  an exemptive  order of  the
Securities and Exchange Commission; and (c) the Investment Manager may terminate
this  Agreement without payment of penalty on thirty days' written notice to the
Fund. Any notice under this Agreement  shall be given in writing, addressed  and
delivered,  or mailed post-paid, to  the other party at  the principal office of
such party.
 
    10. This Agreement may be amended by the parties without the vote or consent
of the shareholders  of the Fund  to supply  any omission, to  cure, correct  or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem  it necessary to  conform this Agreement to  the requirements of applicable
federal laws or  regulations, but neither  the Fund nor  the Investment  Manager
shall be liable for failing to do so.
 
    11.  This Agreement shall  be construed in  accordance with the  laws of the
State of New York and  the applicable provisions of the  Act. To the extent  the
applicable  law  of the  State of  New York,  or any  of the  provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
 
    12. The Declaration of Trust  establishing High Income Advantage Trust  III,
dated  November 23, 1988, a copy of  which, together with all amendments thereto
(the "Declaration"),  is  on  file  in  the  office  of  the  Secretary  of  the
Commonwealth  of  Massachusetts, provides  that the  name High  Income Advantage
Trust III refers to the Trustees under the Declaration collectively as Trustees,
but not  as individuals  or personally;  and no  Trustee, shareholder,  officer,
employee  or  agent of  High Income  Advantage Trust  III shall  be held  to any
personal liability, nor shall  resort be had to  their private property for  the
satisfaction  of any  obligation or claim  or otherwise, in  connection with the
affairs of said High Income Advantage Trust III, but the Trust Estate only shall
be liable.
 
                                      EX-3

    IN WITNESS  WHEREOF, the  parties hereto  have executed  and delivered  this
Agreement on the day and year first above written in New York, New York.
 

                                               
                                                  HIGH INCOME ADVANTAGE TRUST III
 
                                                  By
                                                  ................................................
 
Attest:
 
 ...............................................
 
                                                  DEAN WITTER INTERCAPITAL INC.
 
                                                  By
                                                  ................................................
 
Attest:
 
 ...............................................

 
                                      EX-4


                           HIGH INCOME ADVANTAGE TRUST III 

                                        PROXY 

              THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES

   
The undersigned hereby appoints Robert M. Scanlan, Barry Fink, and Joseph J.
McAlinden, or any of them, proxies, each with the power of substitution, to vote
on behalf of the undersigned at the Annual Meeting of Shareholders of High
Income Advantage Trust III on May 20, 1997, at 10:00 a.m., New York City time,
and at any adjournment thereof, on the proposals set forth in the Notice of
Meeting dated March 19, 1997 as follows:
    



                             (CONTINUED ON REVERSE SIDE)

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
``FOR'' THE TRUSTEES AND THE PROPOSALS SET FORTH ON THE REVERSE HEREOF AND AS
RECOMMENDED BY THE BOARD OF TRUSTEES.

        IMPORTANT --- THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.


- --------------------------------------------------------------------------------

/X/ PLEASE MARK VOTES AS IN THE EXAMPLE USING BLACK OR BLUE INK


                                                                  FOR ALL
                                                  FOR   WITHHOLD  EXCEPT
   
1.  Election of three (3) Trustees:               / /     / /      / /
    Michael Bozic, Charles A. Fiumefreddo,
    Wayne E. Hedien
    
    If you wish to withhold authority for any particular nominee, mark the 
    ``For All Except'' Box and strike a line through the nominee's name.

                                                  FOR   AGAINST   ABSTAIN

2.  Approval of New Investment Management         / /     / /      / /
    Agreement with Dean Witter InterCapital 
    Inc. in connection with proposed merger.

                                                  FOR   AGAINST   ABSTAIN

3.  Ratification of appointment of Price          / /     / /      / /
    Waterhouse LLP as independent accoun-
    tants.




  Please make sure to sign and date 
  this Proxy using black or blue ink.             Date________________
- --------------------------------------   --------------------------------------




- --------------------------------------   --------------------------------------
   Shareholder sign in the box above    Co-Owner (if any) sign in the box above


- --------------------------------------------------------------------------------
                             PLEASE DETACH AT PERFORATION



                           HIGH INCOME ADVANTAGE TRUST III


- --------------------------------------------------------------------------------

                                      IMPORTANT

                     PLEASE SEND IN YOUR PROXY............TODAY!



YOU ARE URGED TO DATE AND SIGN THE ATTACHED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE. THIS WILL HELP SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO
SHAREHOLDERS WHO HAVE NOT RESPONDED.

- --------------------------------------------------------------------------------