<PAGE> 1
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST Two World Trade Center
SEMIANNUAL LETTER TO THE SHAREHOLDERS March 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The six-month period ended March 31, 1999, was a difficult one for the
high-yield bond market, primarily because of a dramatic "flight to quality" in
the second half of 1998. In response to concerns about sharply declining
overseas markets and the potential for a worldwide economic slowdown, investors
sought the relative safety of U.S. government securities over riskier
investments such as equities and high-yield bonds. While equities rebounded
during the fourth quarter of 1998, at the end of the period the high-yield
market still remained near its recent lows as investors continued to be quite
risk averse, apparently awaiting further evidence of continued economic growth
in 1999.
HIGH-YIELD MARKET OVERVIEW
During the latter half of 1998, serious concerns began to emerge over the
rapidly escalating foreign market crisis, raising questions about the possible
extent of its impact on the U.S. economy and corporate earnings. This trend
resulted in a sharp correction in the high-yield bond market during the second
half, causing high-yield bond prices to decline as much as 15 percent in many
cases and driving up yields from their first-half range of 9 percent to the 12
percent area. The high-yield market itself witnessed a flight to quality as
well, with the middle tier of the market (B-rated issues) significantly
underperforming the upper tier (BB-rated issues), again attributable to
investors' severe aversion to risk. As a result, high-yield market yields began
1999 near their highest level in relation to Treasuries in nearly 10 years.
PERFORMANCE
During the six-month period ended March 31, 1999, Morgan Stanley Dean Witter
High Income Advantage Trust produced a total return of -6.32 percent, based on a
change in net asset value (NAV) from $4.44 per share to $3.92 per share and
reinvestment of distributions. The Trust's total return for the period was -0.21
percent, based on a change in the
<PAGE> 2
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS March 31, 1999, continued
Trust's market price on the New York Stock Exchange (NYSE) from $5.25 per share
to $4.938 per share and reinvestment of distributions.
Over the past six months, the Trust continued to distribute regular monthly
income dividends, at a rate of $0.05 per share. For the six-month period ended
March 31, 1999, the Trust's distributions totaled $0.3063, including an extra
income dividend of $0.0063 per share paid on December 18, 1998, to shareholders
of record on December 4, 1998.
PORTFOLIO STRATEGY
During the period under review, the Trust maintained a substantial position in
the more defensive, higher-quality end of the fixed-income market, which held up
well in an extremely 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 the market's second-half
correction, described above.
In an effort to minimize the risk of a potential economic slowdown, we continue
to concentrate on sectors that have historically proven to be more predictable,
recession resistant and growth oriented, such as cellular communications, foods
and beverages, telecommunications, media and cable television. We believe that
these industry groups are poised to perform well over the next year, despite the
slowing of many of the world's markets. In addition, we expect to see continued
consolidation and merger activity within these industries, which should lead to
improved credit quality. We continue to focus primarily on domestic companies,
given the outlook for continued growth in the U.S. economy, and are avoiding
emerging foreign high-yield markets because of the higher degree of uncertainty
associated with many of these markets.
LOOKING AHEAD
Despite the high-yield market's recent weakness, we consider today's
substantially higher, more attractive yields and significantly discounted bond
prices an investment opportunity, especially in view of the still relatively
low-interest-rate environment. Given a soft landing in the economy with growth
continuing into 1999, we expect the high-yield market to follow the lead of the
equity markets and rebound to more normal levels relative to U.S. Treasury
securities. Should this scenario materialize and high-yield bond prices recover,
the Trust would participate not only in today's exceptionally high income levels
but could potentially provide a degree of capital appreciation as well. Although
the B-rated segment of the market was not a good investment performer in 1998,
we are confident that its attractive yield and appreciation potential remain
intact for long-term high-yield investors.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS March 31, 1999, continued
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.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is also the President and Chief Operating Officer of
Asset Management of Morgan Stanley Dean Witter & Co., and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Fund's Investment Manager. He also serves as Chairman, Chief Executive Officer
and Director of Morgan Stanley Dean Witter Distributors Inc. and Morgan Stanley
Dean Witter Trust FSB.
We thank you for your continued support of Morgan Stanley Dean Witter High
Income Advantage Trust and look forward to continuing to serve your investment
needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /S/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
RESULTS OF ANNUAL MEETING
* * *
On December 17, 1998, an annual meeting of the Trust's shareholders was held for
the purpose of voting on two separate matters, the results of which were as
follows:
(1) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For......................................................... 23,506,844
Withheld.................................................... 467,359
Charles A. Fiumefreddo
For......................................................... 23,511,500
Withheld.................................................... 462,703
</TABLE>
The following Trustees were not standing for reelection at this meeting: Edwin
J. Garn, John R. Haire, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E.
Nugent, Philip J. Purcell and John L. Schroeder.
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 23,381,474
Against..................................................... 142,437
Abstain..................................................... 450,292
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (95.1%)
Aerospace (0.7%)
$ 1,000 Sabreliner Corp. - 144A*............. 11.00 % 06/15/08 $ 875,000
-----------
Beverages - Non-Alcoholic (3.8%)
3,000 PepsiCo, Inc. ....................... 15.00 08/06/99 3,099,840
2,000 Sparkling Spring Water (Canada)...... 11.50 11/15/07 1,400,000
-----------
4,499,840
-----------
Books/Magazines (0.6%)
600 American Media Operations, Inc. ..... 11.625 11/15/04 648,000
-----------
Broadcasting (1.1%)
600 Paxson Communications Corp. ......... 11.625 10/01/02 624,000
600 Spanish Broadcasting System, Inc. ... 12.50 06/15/02 675,000
-----------
1,299,000
-----------
Cable Television (0.3%)
7,000 Australis Holdings Property Ltd.
(Australia) (a)..................... 15.00++ 11/01/02 385,000
-----------
Casino/Gambling (3.0%)
5,500 Aladdin Gaming Holdings/Capital Corp.
LLC (Series B)...................... 13.50++ 03/01/10 1,980,000
3,000 Fitzgeralds Gaming Corp. (Series
B).................................. 12.25 12/15/04 1,290,000
1,400 Stuart Entertainment, Inc. (Series
B).................................. 12.50 11/15/04 294,000
-----------
3,564,000
-----------
Cellular Telephone (3.8%)
600 American Cellular Corp. - 144A*...... 10.50 05/15/08 627,000
600 Dobson/Sygnet
Communications - 144A*.............. 12.25 12/15/08 642,000
2,122 Price Communications Cellular
Holdings............................ 11.25+ 08/15/08 2,037,000
2,000 Triton PCS Inc. ..................... 11.00++ 05/01/08 1,180,000
-----------
4,486,000
-----------
Construction/Agricultural Equipment/
Trucks (1.2%)
1,500 J.B. Poindexter & Co., Inc. ......... 12.50 05/15/04 1,462,500
-----------
Consumer Electronics/Appliances
(1.8%)
9,000 International Semi-Tech
Microelectronics, Inc. (Canada)..... 11.50++ 08/15/03 1,260,000
1,000 Windmere-Durable Holdings, Inc. ..... 10.00 07/31/08 915,000
-----------
2,175,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Specialties (1.2%)
$ 2,000 Samsonite Corp. ..................... 10.75 % 06/15/08 $ 1,390,000
-----------
Consumer/Business Services (6.4%)
600 Anacomp, Inc. (Series B)............. 10.875 04/01/04 627,000
1,600 Cex Holdings Inc. ................... 9.625 06/01/08 1,528,000
1,075 Comforce Corp. ...................... 15.00+ 12/01/09 1,096,500
3,000 Comforce Operating, Inc. ............ 12.00 12/01/07 2,970,000
1,800 Entex Information Services, Inc. .... 12.50 08/01/06 1,278,000
-----------
7,499,500
-----------
Containers/Packaging (3.6%)
1,500 Berry Plastics Corp. ................ 12.25 04/15/04 1,582,500
3,000 Envirodyne Industries, Inc. ......... 10.25 12/01/01 2,100,000
600 Impac Group Inc. (Series B).......... 10.125 03/15/08 594,000
-----------
4,276,500
-----------
Diversified Electronic Products
(0.8%)
1,000 High Voltage Engineering, Inc. ...... 10.50 08/15/04 935,000
-----------
Diversified Manufacturing (4.3%)
600 Eagle-Picher Industries, Inc. ....... 9.375 03/01/08 579,000
7,050 Jordan Industries, Inc. (Series B)... 11.75++ 04/01/09 4,441,500
-----------
5,020,500
-----------
Electronic Distributors (1.3%)
2,000 CHS Electronics, Inc. ............... 9.875 04/15/05 1,500,000
-----------
Energy (0.4%)
1,000 Northern Offshore ASA - 144A*
(Norway)............................ 10.00 05/15/05 420,000
-----------
Food Chains (1.9%)
2,250 Pueblo Xtra International, Inc.
(Series C).......................... 9.50 08/01/03 2,193,750
-----------
Food Distributors (0.8%)
1,000 Fleming Companies, Inc. (Series B)... 10.625 07/31/07 925,000
-----------
Hotels/Resorts (4.0%)
1,000 Epic Resorts LLC..................... 13.00 06/15/05 970,000
3,750 Motels of America, Inc. (Series B)... 12.00 04/15/04 2,606,250
1,128 Resort At Summerlin (Series B)....... 13.00+ 12/15/07 1,071,443
-----------
4,647,693
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Industrial Specialties (1.4%)
$ 600 International Wire Group, Inc. ...... 11.75 % 06/01/05 $ 634,500
1,000 Outsourcing Services Group, Inc. .... 10.875 03/01/06 980,000
-----------
1,614,500
-----------
Media Conglomerates (2.5%)
2,700 Walt Disney Co. ..................... 13.50 03/10/00 2,911,869
-----------
Medical Specialties (2.5%)
1,200 Mediq Inc./PRN Life Support
Services Inc. ...................... 11.00 06/01/08 1,044,000
1,000 Universal Hospital Services, Inc. ... 10.25 03/01/08 960,000
1,000 Universal Hospital Services,
Inc. - 144A*........................ 10.25 03/01/08 900,000
-----------
2,904,000
-----------
Medical/Nursing Services (2.5%)
3,000 Pediatric Services of America, Inc.
(Series A).......................... 10.00 04/15/08 1,860,000
3,025 Unison Healthcare Corp. - 144A* (b).. 12.25 11/01/06 862,125
1,000 Vencor Operating, Inc. .............. 9.875 05/01/05 180,000
-----------
2,902,125
-----------
Military/Gov't/Technical (0.5%)
600 Loral Space & Communications
Ltd. - 144A*........................ 9.50 01/15/06 558,000
-----------
Office Equipment/Supplies (1.4%)
2,000 Mosler, Inc. ........................ 11.00 04/15/03 1,700,000
-----------
Oil Refining/Marketing (1.8%)
3,000 Transamerican Refining Corp. ........ 16.00 06/30/03 1,950,000
200 Transamerican Refining
Corp. - 144A*....................... 15.00+ 12/01/03 198,000
-----------
2,148,000
-----------
Other Telecommunications (2.8%)
600 Covad Communications Group,
Inc. - 144A*........................ 12.50 02/15/09 603,000
1,000 Esprit Telecom Group PLC (United
Kingdom)............................ 10.875 06/15/08 1,052,500
600 Level 3 Communications, Inc. ........ 9.125 05/01/08 603,000
1,000 Versatel Telecom BV (Netherlands).... 13.250 05/15/08 1,052,500
-----------
3,311,000
-----------
Package Goods/Cosmetics (2.0%)
2,317 J.B. Williams Holdings, Inc. ........ 12.00 03/01/04 2,398,095
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Printing/Forms (0.8%)
$ 1,000 Premier Graphics Inc. - 144A*........ 11.50 % 12/01/05 $ 975,000
-----------
Restaurants (7.5%)
12,252 American Restaurant Group Holdings,
Inc.- 144A* (c)..................... 0.00 12/15/05 3,797,965
3,000 FRD Acquisition Corp. (Series B)..... 12.50 07/15/04 3,075,000
600 Friendly Ice Cream Corp. ............ 10.50 12/01/07 555,000
5,000 Planet Hollywood International,
Inc. ............................... 12.00 04/01/05 1,350,000
-----------
8,777,965
-----------
Services to the Health Industry
(0.5%)
600 Unilab Corp. ........................ 11.00 04/01/06 636,000
-----------
Specialty Foods/Candy (1.1%)
8,350 Specialty Foods Acquisition Corp.
(Series B).......................... 13.00++ 08/15/05 1,336,000
-----------
Telecommunications (15.8%)
2,000 21st Century Telecom Group, Inc. .... 12.25++ 02/15/08 700,000
2,000 Birch Telecom Inc. .................. 14.00 06/15/08 1,840,000
1,000 Caprock Communications Corp. (Series
B).................................. 12.00 07/15/08 1,017,500
2,000 e. Spire Communications, Inc. ....... 13.75 07/15/07 2,020,000
2,000 Facilicom International, Inc. (Series
B).................................. 10.50 01/15/08 1,560,000
5,500 Firstworld Communications, Inc. ..... 13.00++ 04/15/08 2,062,500
1,000 Focal Communications, Corp. ......... 12.125++ 02/15/08 560,000
1,000 GST Equipment Funding, Inc. ......... 13.25 05/01/07 1,042,500
1,000 GST Telecommunications,
Inc. - 144A*........................ 10.50++ 05/01/08 530,000
600 Hyperion Telecommunication, Inc.
(Series B).......................... 13.00++ 04/15/03 496,500
600 Hyperion Telecommunication, Inc.
(Series B).......................... 12.25 09/01/04 654,000
17,700 In-Flight Phone Corp. (Series B)
(d)................................. 14.00 05/15/02 2,478,000
600 NextLink Communications, Inc. ....... 12.50 04/15/06 663,000
1,000 Optel Inc. .......................... 11.50 07/01/08 940,000
1,000 Pac-West Telecomm Inc. - 144A*....... 13.50 02/01/09 990,000
1,000 Primus Telecommunication Group, Inc.
(Series B).......................... 9.875 05/15/08 970,000
-----------
18,524,000
-----------
Telecommunications Equipment (0.8%)
4,300 FWT, Inc. ........................... 9.875 11/15/07 946,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Wireless Communications (10.2%)
$ 4,000 Advanced Radio Telecom Corp. ........ 14.00 % 02/15/07 $ 3,120,000
8,000 Cellnet Data Systems Inc. ........... 14.00++ 10/01/07 2,640,000
600 Clearnet Communications Inc.
(Canada)............................ 14.75++ 12/15/05 550,500
1,000 Globalstar LP/Capital Corp. ......... 11.375 02/15/04 620,000
1,000 Globalstar LP/Capital Corp. ......... 11.50 06/01/05 630,000
1,200 Paging Network, Inc. ................ 10.00 10/15/08 1,002,000
2,000 USA Mobile Communications Holdings,
Inc. ............................... 14.00 11/01/04 1,960,000
2,000 WinStar Communications, Inc. ........ 14.00++ 10/15/05 1,440,000
-----------
11,962,500
-----------
TOTAL CORPORATE BONDS
(Identified Cost $142,505,980)............................ 111,807,337
-----------
NUMBER OF
SHARES
- --------
COMMON STOCKS (e) (0.7%)
Casino/Gambling (0.0%)
2,000 Fitzgerald Gaming Corp. .................................. --
-----------
Clothing/Shoe/Accessory Stores (0.3%)
946,890 County Seat Store, Inc. (c)............................... 426,101
-----------
Hotels/Resorts (0.0%)
4,000 Motels of America, Inc. - 144A*........................... 4,000
-----------
Motor Vehicles (0.0%)
113 Northern Holdings Industrial Corp. (c)*................... --
-----------
Restaurants (0.0%)
9,500 American Restaurant Group Holdings, Inc. - 144A*.......... --
-----------
Specialty Foods/Candy (0.1%)
180,000 Specialty Foods Acquisition Corp. - 144A*................. 90,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Textiles (0.3%)
223,846 United States Leather, Inc. (c)........................... $ 335,884
-----------
TOTAL COMMON STOCKS
(Identified Cost $16,790,468)............................. 855,985
-----------
CONVERTIBLE PREFERRED STOCKS (0.0%)
Oil Refining/Marketing
8,000 Transcontinental Refining Corp.*.......................... 5,440
9,266 Transcontinental Refining Corp. (Class B)*................ 556
5,096 Transcontinental Refining Corp. (Class C)*................ 306
13,435 Transcontinental Refining Corp. (Class D)*................ 806
27,797 Transcontinental Refining Corp. (Class E)*................ 1,668
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $8,768).................................. 8,776
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- --------- ----------
<C> <S> <C> <C>
WARRANTS (e) (0.1%)
Aerospace (0.0%)
5,000 Sabreliner Corp. - 144A*...................... 04/15/03 50,000
-----------
Casino/Gambling (0.0%)
45,000 Aladdin Gaming Enterprises, Inc. - 144A*...... 03/01/10 472
-----------
Hotels/Resorts (0.0%)
1,000 Epic Resorts LLC - 144A*...................... 06/15/05 --
1,000 Resort At Summerlin - 144A*................... 12/15/07 --
-----------
--
-----------
Major U.S. Telecommunications (0.0%)
2,000 Birch Telecom Inc. - 144A*.................... 06/15/08 10,000
-----------
Oil Refining/Marketing (0.0%)
3,000 Transamerican Refining Corp. - 144A*.......... 06/30/03 --
-----------
Telecommunications (0.1%)
5,500 Firstworld Communications, Inc. - 144A*....... 04/15/08 --
1,000 Versatel Telecom - 144A* (Netherlands)........ 05/15/08 70,105
-----------
70,105
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C> <C>
TOTAL WARRANTS
(Identified Cost $133,075)............................... $ 130,577
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------- ---------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (1.3%)
REPURCHASE AGREEMENT
$ 1,539 The Bank of New York
(dated 03/31/99; proceeds $1,539,364)
(Identified Cost $1,539,156)(f)...... 4.875 04/01/99 1,539,156
-----------
TOTAL INVESTMENTS
(Identified Cost $160,977,447)(g)................. 97.2% 114,341,831
OTHER ASSETS IN EXCESS OF LIABILITIES............... 2.8 3,284,927
----- -----------
NET ASSETS........................................ 100.0% $117,626,758
===== ===========
</TABLE>
- ---------------------
<TABLE>
<S> <C>
* Resale is restricted to qualified institutional investors.
+ 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 security; issuer in bankruptcy.
(e) Non-income producing securities.
(f) Collateralized by $129,115 U.S. Treasury Bond 8.875% due
08/15/17 valued at $172,833; $685,000 U.S. Treasury Bond
5.50% due 08/15/28 valued at $658,005; $147,647 U.S.
Treasury Note 6.50% due 05/31/02 valued at $156,513 and
$583,000 U.S. Treasury Note 3.625% due 01/15/08 valued at
$582,588.
(g) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $1,938,309 and the aggregate gross
unrealized depreciation is $48,573,925, resulting in net
unrealized depreciation of $46,635,616.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $160,977,447)............................. $ 114,341,831
Interest receivable......................................... 3,463,888
Prepaid expenses and other assets........................... 15,571
-------------
TOTAL ASSETS............................................ 117,821,290
-------------
LIABILITIES:
Investment management fee payable........................... 80,220
Accrued expenses and other payables......................... 114,312
-------------
TOTAL LIABILITIES....................................... 194,532
-------------
NET ASSETS.............................................. $ 117,626,758
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $ 282,056,353
Net unrealized depreciation................................. (46,635,616)
Accumulated net investment income........................... 2,820,399
Accumulated net realized loss............................... (120,614,378)
-------------
NET ASSETS.............................................. $ 117,626,758
=============
NET ASSET VALUE PER SHARE,
30,017,252 shares outstanding
(unlimited shares authorized of $.01 par value)............ $3.92
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended March 31, 1999 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 9,764,695
------------
EXPENSES
Investment management fee................................... 463,063
Transfer agent fees and expenses............................ 57,369
Professional fees........................................... 26,027
Shareholder reports and notices............................. 19,829
Registration fees........................................... 16,191
Trustees' fees and expenses................................. 9,600
Custodian fees.............................................. 9,198
Other....................................................... 6,694
------------
TOTAL EXPENSES.......................................... 607,971
------------
NET INVESTMENT INCOME................................... 9,156,724
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (1,630,457)
Net change in unrealized depreciation....................... (13,927,195)
------------
NET LOSS................................................ (15,557,652)
------------
NET DECREASE................................................ $ (6,400,928)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
MARCH 31, ENDED
1999 SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 9,156,724 $ 18,805,208
Net realized loss.................................. (1,630,457) (4,246,898)
Net change in unrealized depreciation.............. (13,927,195) (17,566,403)
------------ ------------
NET DECREASE................................... (6,400,928) (3,008,093)
Dividends from net investment income............... (9,194,111) (19,309,716)
------------ ------------
NET DECREASE................................... (15,595,039) (22,317,809)
NET ASSETS:
Beginning of period................................ 133,221,797 155,539,606
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $2,820,399 and $2,857,786, respectively).... $117,626,758 $133,221,797
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1999 (unaudited)
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 securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1999 (unaudited) continued
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 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
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1999 (unaudited) continued
Investment Manager also bears the cost of telephone services, heat, light, power
and other utilities provided to the Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended March 31, 1999 aggregated
$29,539,926 and $32,795,616, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At March 31, 1999, the Trust had transfer agent fees
and expenses payable of approximately $700.
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 six months ended March 31, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $3,072. At March 31, 1999, the Trust had an accrued pension liability of
$52,034 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 and March 31, 1999.............. 30,017,252 $300,172 $281,756,181
========== ======== ============
</TABLE>
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 1999 (unaudited) 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>
March 30, 1999 $0.05 April 9, 1999 April 23, 1999
April 27, 1999 $0.05 May 7, 1999 May 21, 1999
</TABLE>
6. FEDERAL INCOME TAX STATUS
At September 30, 1998, the Trust had a net capital loss carryover of
approximately $113,360,000, to offset future capital gains to the extent
provided by regulations, available through September 30 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ---------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2005 2006
- --------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 27,667 $23,411 $109 $15,205 $26,684 $6,214 $14,070
======= ======= ==== ======= ======= ====== =======
</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 $2,983,000 during fiscal 1998.
At September 30, 1998, the Trust had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.
18
<PAGE> 19
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 SIX FOR THE YEAR ENDED SEPTEMBER 30
MONTHS ENDED ----------------------------------------------------
MARCH 31, 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <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 $ 5.99
------ ----- ----- ----- ----- ------
Income (loss) from investment operations:
Net investment income.................................... 0.31 0.62 0.63 0.66 0.61 0.62
Net realized and unrealized gain (loss).................. (0.52) (0.72) -- (0.14) 0.01 (0.62)
------ ----- ----- ----- ----- ------
Total income (loss) from investment operations............ (0.21) (0.10) 0.63 0.52 0.62 --
------ ----- ----- ----- ----- ------
Dividends from net investment income...................... (0.31) (0.64) (0.67) (0.60) (0.64) (0.67)
------ ----- ----- ----- ----- ------
Net asset value, end of period............................ $ 3.92 $4.44 $5.18 $5.22 $5.30 $ 5.32
====== ===== ===== ===== ===== ======
Market value, end of period............................... $4.938 $5.25 $6.25 $6.00 $5.75 $5.625
====== ===== ===== ===== ===== ======
TOTAL RETURN+............................................. (0.21)%(1) (6.52)% 16.26% 15.53% 14.59% 2.56%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................. 0.98%(2) 0.95% 0.92% 0.92% 1.01% 0.98%
Net investment income..................................... 14.83%(2) 12.58% 12.43% 12.50% 11.79% 10.52%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................... $117,627 $133,222 $155,540 $156,738 $159,167 $159,835
Portfolio turnover rate................................... 25%(1) 105% 124% 117% 63% 102%
</TABLE>
- ---------------------
+ Total investment return is based upon the current market value on the last
day of each period reported. Dividends are assumed to be reinvested at the
prices obtained under the Trust's dividend reinvestment plan. Total
investment return does not reflect brokerage commissions.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
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
The financial statements included herein have been taken
from the records of the Trust without examination by the
independent accountants and accordingly they do not express
an opinion thereon.
MORGAN STANLEY
DEAN WITTER
HIGH INCOME
ADVANTAGE TRUST
Semiannual Report
March 31, 1999
