<PAGE> 1
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS September 30, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The twelve-month period ended September 30, 1999, has been a difficult one for
the high-yield bond market, beginning with the fixed-income market's dramatic
flight to quality during the second half of 1998. In response to concerns about
the rapidly escalating foreign-market crisis and its potential effect on the
U.S. economy, investors sought the relative safety of U.S. government securities
over more economically sensitive investments such as equities and high-yield
bonds. This action resulted in a sharp correction in the high-yield bond market
during the second half of 1998. High-yield bond prices declined as much as 15
percent, and yields rose from approximately 9 percent to the 12-percent range.
The high-yield market also experienced its own flight to quality during late
1998, with the middle tier of the market (B-rated issues) significantly
underperforming the upper tier (BB-rated issues), due to investors' severe risk
aversion.
As we proceed through the second half of 1999, the high-yield market has yet to
rebound from its woes of late last year. Fears about the foreign-market crisis
have now been replaced by concerns over potential inflation and ongoing
credit-tightening actions by the Federal Reserve Board. These concerns drove
interest rates sharply higher during the first half of 1999, resulting in a very
weak fixed-income market environment. While the high-yield market held up better
than most other fixed-income markets during the first half of 1999, it clearly
remains quite weak, due to the depressed bond market environment that exists
today. As a result, as 1999 begins to come to a close, high-yield market yields
are approaching their highest and most attractive levels in nearly a decade,
providing an unusually large yield advantage over U.S. Treasuries.
PERFORMANCE
During the fiscal year ended September 30, 1999, Morgan Stanley Dean Witter High
Income Advantage Trust produced a total return of -10.96 percent, based on a
change in net asset value (NAV) and
<PAGE> 2
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
reinvestment of dividends. Based on a change in the Trust's market price on the
New York Stock Exchange (NYSE) and reinvestment of dividends, the Trust's total
return for the fiscal year was -8.83 percent.
During the twelve-month period ended September 30, 1999, the Trust continued to
distribute regular monthly income dividends, at a rate of $0.05 per share. For
the fiscal year the Trust's distributions totaled $0.6063 per share, including
an extra income dividend of $0.0063 paid per share on December 18, 1998.
Beginning with the income dividend payable on October 22, 1999, the Trust's
monthly income dividend was lowered to $0.045 per share. The new dividend rate
better reflects the earning potential of the Trust's portfolio securities.
PORTFOLIO STRATEGY
During the fiscal year the Trust maintained a position in the more defensive,
higher-quality end of the high-yield market, which held up well in this period's
volatile environment. Despite these defensive holdings, however, the Trust's
more significant, long-term core position in the B-rated sector of the market
was sharply affected by 1998's market correction as bond prices declined sharply
and yields rose dramatically. In terms of investment strategy we continue to
concentrate on industry sectors that have historically proven to be more
predictable, recession resistant or growth oriented, such as cable television,
cellular communications, food and beverages, media, supermarkets and
telecommunications. We believe that these industry groups are poised to perform
well over the next year. We also expect to see continued consolidation and
merger activity within these industries, which should result in improved credit
quality for many of the industries' players. We continue to focus primarily on
domestic companies, given the favorable outlook for sustained growth in the U.S.
economy, and are avoiding the emerging foreign high-yield markets at this time
because of the higher degree of uncertainty and volatility associated with many
of these markets over the past few years.
LOOKING AHEAD
Despite the high-yield market's weakness over the past year, we consider today's
substantially higher, more attractive yields and significantly discounted bond
prices an excellent investment opportunity, particularly given the relatively
low-interest-rate environment and the favorable outlook for the economy.
Assuming a soft landing in the economy with growth continuing into next year, we
would expect the high-yield market to recover, following the lead of the equity
markets, which have rebounded sharply over the past nine months. Should this
scenario materialize and high-yield bond prices recover, the Trust would
participate in today's exceptionally high income levels and may
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
potentially provide a degree of capital appreciation as well. Although the
B-rated segment of the market has not been a good investment performer over the
past year, we are confident that its attractive yield and appreciation potential
remain intact for long-term high-yield investors.
We would like to remind you that the Trustees have approved a procedure whereby
the Trust may, when appropriate, repurchase shares in the open market or in
privately negotiated transactions at a price not above market value or net asset
value, whichever is lowest at the time of purchase.
We thank you for your ongoing support of Morgan Stanley Dean Witter High Income
Advantage Trust and look forward to continuing to serve your investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (95.0%)
Aerospace (0.7%)
$ 1,000 Sabreliner Corp. - 144A*............. 11.00 % 06/15/08 $ 720,000
-----------
Beverages - Non-Alcoholic (1.5%)
2,000 Sparkling Spring Water (Canada)...... 11.50 11/15/07 1,600,000
-----------
Broadcast/Media (1.2%)
600 Spanish Broadcasting System, Inc. ... 12.50 06/15/02 687,000
600 Tri-State Outdoor Mediagroup,
Inc. ................................ 11.00 05/15/08 588,000
-----------
1,275,000
-----------
Cable Television (3.2%)
2,000 21st Century Telecom Group, Inc. .... 12.25 ++ 02/15/08 820,000
7,000 Australis Holdings Ltd.
(Australia) (a)...................... 15.00 ++ 11/01/02 175,000
1,000 Knology Holdings, Inc. .............. 11.875++ 10/15/07 550,000
200 Optel, Inc. (Series B)............... 13.00 02/15/05 136,000
2,700 Optel, Inc. (Series B)............... 11.50 07/01/08 1,728,000
-----------
3,409,000
-----------
Casino/Gambling (3.5%)
5,500 Aladdin Gaming Capital Corp.
(Series B).......................... 13.50 ++ 03/01/10 2,048,750
3,000 Fitzgeralds Gaming Corp. (Series
B) (b)............................... 12.25 12/15/04 1,650,000
-----------
3,698,750
-----------
Cellular Telephone (1.9%)
600 American Cellular Corp. ............. 10.50 05/15/08 621,000
600 Clearnet Communications Inc.
(Canada)............................. 14.75 ++ 12/15/05 567,000
600 Dobson/Sygnet Communications......... 12.25 12/15/08 630,000
500 Dolphin Telecom PLC - 144A* (United
Kingdom)............................ 14.00 ++ 05/15/09 202,500
-----------
2,020,500
-----------
Construction/Agricultural Equipment/Trucks
(1.3%)
1,500 J.B. Poindexter & Co., Inc. ......... 12.50 05/15/04 1,410,000
-----------
Consumer Electric/Appliances (1.3%)
9,000 International Semi-Tech
Microelectronics, Inc.
(Canada) (a)........................ 11.50 ++ 08/15/03 450,000
1,000 Windmere-Durable Holdings, Inc. ..... 10.00 07/31/08 960,000
-----------
1,410,000
-----------
Consumer Specialties (1.7%)
2,000 Samsonite Corp. ..................... 10.75 06/15/08 1,750,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer/Business Services (4.7%)
$ 600 Anacomp, Inc. (Series B)............. 10.875% 04/01/04 $ 594,000
1,156 Comforce Corp. (Series B)............ 15.00 + 12/01/09 866,719
3,000 Comforce Operating, Inc. ............ 12.00 12/01/07 2,250,000
2,600 Entex Information Services, Inc. .... 12.50 08/01/06 1,300,000
-----------
5,010,719
-----------
Containers/Packaging (3.4%)
700 Berry Plastics Corp. ................ 12.25 04/15/04 710,500
3,000 Envirodyne Industries, Inc. ......... 10.25 12/01/01 2,370,000
600 Impac Group Inc. (Series B).......... 10.125 03/15/08 534,000
-----------
3,614,500
-----------
Contract Drilling (1.1%)
1,900 Northern Offshore ASA (Series B)
(Norway)............................ 10.00 05/15/05 1,159,000
-----------
Diversified Electronic Products
(0.9%)
1,000 High Voltage Engineering, Inc. ...... 10.50 08/15/04 920,000
-----------
Diversified Manufacturing (4.9%)
600 Eagle-Picher Industries, Inc. ....... 9.375 03/01/08 528,000
7,050 Jordan Industries, Inc. (Series B)... 11.75 ++ 04/01/09 4,582,500
-----------
5,110,500
-----------
Electronic Distributors (0.3%)
2,000 CHS Electronics, Inc. ............... 9.875 04/15/05 280,000
-----------
Food Chains (1.9%)
2,250 Pueblo Xtra International, Inc.
(Series C).......................... 9.50 08/01/03 2,002,500
-----------
Food Distributors (0.9%)
1,000 Fleming Companies, Inc. (Series B)... 10.625 07/31/07 927,500
-----------
Hotels/Resorts (2.4%)
1,000 Epic Resorts LLC (Series B).......... 13.00 06/15/05 865,000
1,350 Motels of America, Inc. (Series B)... 12.00 04/15/04 735,750
1,200 Resort At Summerlin (Series B)....... 13.00 12/15/07 888,189
-----------
2,488,939
-----------
Industrial Specialties (1.8%)
600 Indesco International, Inc. ......... 9.75 04/15/08 324,000
600 International Wire Group, Inc. ...... 11.75 06/01/05 613,500
1,000 Outsourcing Services Group, Inc.
(Series B).......................... 10.875 03/01/06 925,000
-----------
1,862,500
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Internet Services (0.8%)
$ 900 Cybernet Internet Services - 144A*
(Units)++........................... 14.00 % 07/01/09 $ 886,500
-----------
Media Conglomerates (2.7%)
2,700 Walt Disney Co. ..................... 13.50 03/10/00 2,793,150
-----------
Medical Specialties (2.9%)
1,200 MEDIQ Inc./PRN Life Support.......... 11.00 06/01/08 780,000
1,000 Universal Hospital Services, Inc.
(issued 02/26/99).................... 10.25 03/01/08 730,000
2,000 Universal Hospital Services, Inc.
(issued 02/25/98).................... 10.25 03/01/08 1,540,000
-----------
3,050,000
-----------
Medical/Nursing Services (1.7%)
3,000 Pediatric Services of America, Inc.
(Series A).......................... 10.00 04/15/08 1,800,000
-----------
Military/Government/Technical (0.5%)
600 Loral Space & Communications Ltd. ... 9.50 01/15/06 511,500
-----------
Office Equipment & Supplies (1.5%)
2,000 Mosler, Inc. ........................ 11.00 04/15/03 1,600,000
-----------
Oil Refining/Marketing (0.7%)
3,000 Transamerican Refining Corp. (Series
B) (a)(b)........................... 16.00 06/30/03 750,000
-----------
Other Telecommunications (9.5%)
2,000 Birch Telecom Inc. (Units)++......... 14.00 06/15/08 1,980,000
1,000 DTI Holdings, Inc. - (Series B)...... 12.50 ++ 03/01/08 350,000
600 Esprit Telecom Group PLC (United
Kingdom)............................ 10.875 06/15/08 606,000
2,000 Facilicom International, Inc. (Series
B)................................... 10.50 01/15/08 1,700,000
3,400 Firstworld Communications, Inc. ..... 13.00 ++ 04/15/08 1,734,000
600 Globenet Comm Group Ltd. - 144A*
(Bermuda)........................... 13.00 07/15/07 570,000
1,000 Pac-West Telecomm Inc. - 144A*....... 13.50 02/01/09 1,010,000
1,000 Primus Telecommunications Group, Inc.
(Series B).......................... 9.875 05/15/08 875,000
600 Versatel Telecom BV (Netherlands).... 13.25 05/15/08 600,000
600 Worldwide Fiber Inc. - 144A*
(Canada)............................. 12.00 08/01/09 585,000
-----------
10,010,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Packaged Goods/Cosmetics (2.2%)
$ 2,317 J.B. Williams Holdings, Inc. ........ 12.00 % 03/01/04 $ 2,317,000
-----------
Printing/Forms (0.9%)
1,000 Premier Graphics Inc. ............... 11.50 12/01/05 925,000
-----------
Restaurants (6.7%)
12,252 American Restaurant Group Holdings,
Inc. - 144A* (c).................... 0.00 12/15/05 3,859,222
3,000 FRD Acquisition Corp. (Series B)..... 12.50 07/15/04 2,610,000
600 Friendly Ice Cream Corp. ............ 10.50 12/01/07 549,000
-----------
7,018,222
-----------
Retail - Specialty (0.6%)
600 Pantry, Inc. ........................ 10.25 10/15/07 592,500
-----------
Services To The Health Industry
(0.6%)
600 Unilab Corp. ........................ 11.00 04/01/06 669,000
-----------
Specialty Foods/Candy (2.5%)
15,356 SFAC New Holdings Inc. - 144A* (c)... 13.00 06/15/09 2,610,574
-----------
Telecommunication (10.2%)
600 Caprock Communications Corp. (Series
B).................................. 12.00 07/15/08 591,000
1,200 Covad Communications Group, Inc. .... 12.50 02/15/09 1,134,000
2,000 e.spire Communications, Inc. ........ 13.75 07/15/07 1,680,000
1,000 Focal Communications Corp. (Series
B)................................... 12.125++ 02/15/08 565,000
600 GST Equipment Funding, Inc. ......... 13.25 05/01/07 606,000
600 Hyperion Telecommunication, Inc.
(Series B).......................... 12.25 09/01/04 633,000
17,700 In-Flight Phone Corp. (Series
B) (a)(b)............................ 14.00 ++ 05/15/02 1,770,000
600 Level 3 Communications, Inc. ........ 9.125 05/01/08 543,000
600 NextLink Communications, Inc. ....... 12.50 04/15/06 636,000
1,800 Rhythms Netconnection,
Inc. - 144A*......................... 12.75 04/15/09 1,629,000
1,000 Talton Holdings, Inc. (Series B)..... 11.00 06/30/07 920,000
-----------
10,707,000
-----------
Telecommunication Equipment (0.3%)
4,300 FWT, Inc. (a)(b)..................... 9.875 11/15/07 344,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Wireless Communication (12.1%)
$ 4,000 Advanced Radio Telecom Corp. ........ 14.00 % 02/15/07 $ 3,600,000
900 AMSC Aquisition Co., Inc. (Series
B)................................... 12.25 04/01/08 639,000
300 Arch Escrow Corp. - 144A*............ 13.75 04/15/08 225,000
8,000 CellNet Data Systems Inc. ........... 14.00 ++ 10/01/07 3,120,000
1,000 Globalstar LP/Capital Corp. ......... 11.50 06/01/05 615,000
1,200 Orbcomm Global LP/Capital (Series
B)................................... 14.00 08/15/04 1,056,000
1,600 Paging Network, Inc. ................ 10.125 08/01/07 448,000
2,300 Paging Network, Inc. ................ 10.00 10/15/08 644,000
2,000 USA Mobile Communications Holdings,
Inc. ............................... 14.00 11/01/04 1,790,000
600 Winstar Equipment Corp. ............. 12.50 03/15/04 615,000
-----------
12,752,000
-----------
TOTAL CORPORATE BONDS
(Identified Cost $137,402,311)............................ 100,005,854
-----------
<CAPTION>
NUMBER OF
SHARES
- ---------
<C> <S> <C> <C> <C>
COMMON STOCKS (d) (0.9%)
Casino/Gambling (0.0%)
2,000 Fitzgerald Gaming Corp. .................................. --
-----------
Cellular Telephone (0.0%)
1 Price Communication Corp. ................................ --
-----------
Clothing/Shoe/Accessory Stores (0.0%)
946,890 County Seat Stores, Inc. (c).............................. 8,522
-----------
Hotels/Resorts (0.0%)
4,000 Motels of America, Inc. - 144A*........................... 1,000
-----------
Medical/Nursing Services (0.6%)
211,076 Raintree Healthcare Corp. (c)............................. 569,950
-----------
Motor Vehicles (0.0%)
113 Northern Holdings Industrial Corp. (c)*................... --
-----------
Restaurant (0.0%)
9,500 American Restaurant Group Holdings, Inc. - 144A*.......... 2,375
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Specialty Foods/Candy (0.0%)
835 SFAC New Holdings Inc. (c)*............................... $ 209
180,000 Specialty Foods Acquisition Corp. - 144A*................. 45,000
-----------
45,209
-----------
Textiles (0.3%)
223,846 U.S. Leather, Inc. (c).................................... 279,808
-----------
TOTAL COMMON STOCKS
(Identified Cost $19,646,949)............................. 906,864
-----------
CONVERTIBLE PREFERRED STOCKS (0.0%)
Oil Refining/Marketing
5,266 Transcontinental Refining Corp. (Class B)*................ 316
2,896 Transcontinental Refining Corp. (Class C)*................ 162
7,635 Transcontinental Refining Corp. (Class D)*................ 405
15,797 Transcontinental Refining Corp. (Class E)*................ 995
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $1,879).................................. 1,878
-----------
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- --------- ----------
<C> <S> <C> <C> <C>
WARRANTS (d) (0.5%)
Aerospace (0.0%)
5,000 Sabreliner Corp. - 144A*...................... 04/15/03 50,000
-----------
Casino Gambling (0.0%)
45,000 Aladdin Gaming Enterprises, Inc. - 144A*...... 03/01/10 450
-----------
Hotels/Resorts (0.0%)
1,000 Epic Resorts LLC - 144A*...................... 06/15/05 --
1,000 Resort At Summerlin - 144A*................... 12/15/07 --
-----------
--
-----------
Oil Refining/Marketing (0.0%)
3,000 Transamerican Refining Corp. - 144A*.......... 06/30/03 --
-----------
Other Telecommunications (0.5%)
2,000 Birch Telecom Inc. - 144A*.................... 06/15/08 110,000
5,000 DTI Holdings Inc. - 144A*..................... 03/01/08 100
3,400 Firstworld Communications, Inc. - 144A*....... 04/15/08 238,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1,000 Versatel Telecom - 144A* (Netherlands)........ 05/15/08 $ 125,000
-----------
473,100
-----------
Wireless Communication (0.0%)
900 American Mobile Satellite Corp. - 144A*....... 04/01/08 35,550
-----------
TOTAL WARRANTS
(Identified Cost $133,104)................................. 559,100
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------- ----------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (1.1%)
REPURCHASE AGREEMENT
$ 1,175 The Bank of New York (dated 09/30/99;
proceeds $1,174,823) (e)
(Identified Cost $1,174,660)........ 5.00 % 10/01/99 1,174,660
-----------
TOTAL INVESTMENTS
(Identified Cost $158,358,903) (f)............ 97.5% 102,648,356
OTHER ASSETS IN EXCESS OF LIABILITIES......... 2.5 2,669,416
----- -----------
NET ASSETS.................................... 100.0% $105,317,772
===== ===========
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
++ Consists of one or more classes of securities traded together as a unit;
bonds with attached warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond that will pay interest at the rate shown at a
future specified date.
(a) Issuer in bankruptcy.
(b) Non-income producing security; bond in default.
(c) Acquired through exchange offer.
(d) Non-income producing securities.
(e) Collateralized by $154,597 Federal Home Loan Bank 5.50% due 08/13/01 valued
at $154,049; $425,000 Federal Home Loan Bank 5.315% due 12/23/08 valued at
$388,123; $375,000 Federal National Mortgage Association-Single Mortgage
6.80% due 01/10/03 valued at $385,017 and $276,695 Federal National
Mortgage Association-Single Mortgage 5.25% due 01/15/03 valued at $271,434.
(f) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $1,899,993 and the
aggregate gross unrealized depreciation is $57,610,540, resulting in net
unrealized depreciation of $55,710,547.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
ASSETS:
Investments in securities, at value
(identified cost $158,358,903)............................. $102,648,356
Interest receivable......................................... 2,860,912
Prepaid expenses and other assets........................... 12,600
-----------
TOTAL ASSETS............................................ 105,521,868
-----------
LIABILITIES:
Investment management fee payable........................... 74,855
Accrued expenses and other payables......................... 129,241
-----------
TOTAL LIABILITIES....................................... 204,096
-----------
NET ASSETS.............................................. $105,317,772
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $254,389,602
Net unrealized depreciation................................. (55,710,547)
Accumulated undistributed net investment income............. 1,749,734
Accumulated net realized loss............................... (95,111,017)
-----------
NET ASSETS.............................................. $105,317,772
===========
NET ASSET VALUE PER SHARE,
30,017,252 shares outstanding
(unlimited shares authorized of $.01 par value)............ $3.51
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended September 30, 1999
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 18,277,427
------------
EXPENSES
Investment management fee................................... 892,573
Transfer agent fees and expenses............................ 107,057
Professional fees........................................... 67,241
Shareholder reports and notices............................. 39,639
Registration fees........................................... 32,488
Trustees' fees and expenses................................. 20,053
Custodian fees.............................................. 14,418
Other....................................................... 12,889
------------
TOTAL EXPENSES.......................................... 1,186,358
------------
NET INVESTMENT INCOME................................... 17,091,069
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (3,793,847)
Net change in unrealized depreciation....................... (23,002,126)
------------
NET LOSS................................................ (26,795,973)
------------
NET DECREASE................................................ $ (9,704,904)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................ $ 17,091,069 $ 18,805,208
Net realized loss................................ (3,793,847) (4,246,898)
Net change in unrealized depreciation............ (23,002,126) (17,566,403)
------------ ------------
NET DECREASE................................. (9,704,904) (3,008,093)
Dividends from net investment income............. (18,199,121) (19,309,716)
------------ ------------
NET DECREASE................................. (27,904,025) (22,317,809)
NET ASSETS:
Beginning of period.............................. 133,221,797 155,539,606
------------ ------------
END OF PERIOD
(Including undistributed net investment
income of $1,749,734 and $2,857,786,
respectively)................................ $105,317,772 $133,221,797
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter High Income Advantage Trust (the "Trust"), formerly
High Income Advantage Trust, is registered under the Investment Company Act of
1940, as amended, as a diversified, closed-end management investment company.
The Trust's primary investment objective is to earn a high level of current
income and, as a secondary objective, capital appreciation, but only when
consistent with its primary objective. The Trust was organized as a
Massachusetts business trust on June 17, 1987 and commenced operations on
October 29, 1987.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where a security is traded on more than one exchange, the security is
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), that sale and bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Trustees; (4) certain of the portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (5) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
securities having a maturity date of sixty days or less at the time of purchase
are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager, the
Trust pays a management fee, accrued weekly and payable monthly, by applying the
following annual rates to the Trust's weekly net assets: 0.75% to the portion of
weekly net assets not exceeding $250 million; 0.60% to the portion of weekly net
assets exceeding $250 million but not exceeding $500 million; 0.50% to the
portion of weekly net assets exceeding $500 million but not exceeding $750
million; 0.40% to the portion of weekly net assets exceeding $750 million but
not exceeding $1 billion; and 0.30% to the portion of weekly net assets
exceeding $1 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
space, facilities, equipment, clerical, bookkeeping and certain legal services
and pays the salaries of all personnel, including officers of the Trust who are
employees of the Investment Manager. The Investment Manager also bears the cost
of telephone services, heat, light, power and other utilities provided to the
Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended September 30, 1999 aggregated
$58,923,080 and $66,118,410, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At September 30, 1999, the Trust had transfer agent
fees and expenses payable of approximately $1,600.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended September 30, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,839. At September 30, 1999, the Trust had an accrued pension liability of
$51,999 which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, September 30, 1997................................. 30,017,252 $300,172 $287,479,138
Reclassification due to permanent book/tax differences...... -- -- (5,722,957)
---------- -------- ------------
Balance, September 30, 1998................................. 30,017,252 $300,172 $281,756,181
Reclassification due to permanent book/tax differences...... -- -- (27,666,751)
---------- -------- ------------
Balance, September 30, 1999................................. 30,017,252 $300,172 $254,089,430
========== ======== ============
</TABLE>
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
5. DIVIDENDS
The Trust declared the following dividends from net investment income:
<TABLE>
<CAPTION>
DECLARATION AMOUNT RECORD PAYABLE
DATE PER SHARE DATE DATE
- ------------------ --------- ------------------ ------------------
<S> <C> <C> <C>
September 28, 1999 $0.045 October 8, 1999 October 22, 1999
October 26, 1999 $0.045 November 5, 1999 November 19, 1999
</TABLE>
6. FEDERAL INCOME TAX STATUS
At September 30, 1999, the Trust had a net capital loss carryover of
approximately $89,000,000, to offset future capital gains to the extent provided
by regulations, available through September 30 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ----------------------------------------------------------------------------------
2000 2001 2002 2003 2005 2006 2007
--------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$23,411 $109 $15,205 $26,684 $6,214 $14,070 $3,307
======= ==== ======= ======= ====== ======= ======
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Trust's next
taxable year. The Trust incurred and will elect to defer net capital losses of
approximately $3,716,000 during fiscal 1999.
As of September 30, 1999, the Trust had temporary book/tax differences primarily
attributable to post-October losses, capital loss deferrals on wash sales and
interest on bonds in default and permanent book/tax differences attributable to
an expired net capital loss carryover. To reflect reclassifications arising from
the permanent differences, paid-in-capital was charged and accumulated net
realized loss was credited $27,666,751.
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period................... $ 4.44 $ 5.18 $ 5.22 $ 5.30 $ 5.32
---------- -------- -------- ---------- --------
Income (loss) from investment operations:
Net investment income................................. 0.57 0.62 0.63 0.66 0.61
Net realized and unrealized gain (loss)............... (0.89) (0.72) -- (0.14) 0.01
---------- -------- -------- ---------- --------
Total income (loss) from investment operations......... (0.32) (0.10) 0.63 0.52 0.62
---------- -------- -------- ---------- --------
Dividends from net investment income................... (0.61) (0.64) (0.67) (0.60) (0.64)
---------- -------- -------- ---------- --------
Net asset value, end of period......................... $ 3.51 $ 4.44 $ 5.18 $ 5.22 $ 5.30
========== ======== ======== ========== ========
Market value, end of period............................ $ 4.25 $ 5.25 $ 6.25 $ 6.00 $ 5.75
========== ======== ======== ========== ========
TOTAL RETURN+.......................................... (8.83)% (6.52)% 16.26% 15.53% 14.59%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... 1.00% 0.95% 0.92% 0.92% 1.01%
Net investment income.................................. 14.36% 12.58% 12.43% 12.50% 11.79%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................ $105,318 $133,222 $155,540 $156,738 $159,167
Portfolio turnover rate................................ 51% 105% 124% 117% 63%
</TABLE>
- ---------------------
+ Total return is based upon the current market value on the last day of each
period reported. Dividends are assumed to be reinvested at the prices
obtained under the Trust's dividend reinvestment plan. Total return does not
reflect brokerage commissions.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter High
Income Advantage Trust (the "Trust"), formerly High Income Advantage Trust, at
September 30, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 9, 1999
19
<PAGE> 20
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
HIGH INCOME
ADVANTAGE
TRUST
Annual Report
September 30, 1999
