<PAGE> 1
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS March 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The high-yield market continued to remain under pressure during the six-month
period ended March 31, 2000. The weak market conditions, which began as far back
as late 1998, continued into and throughout much of calendar year 1999 as
investor concerns over foreign-market crises and a possible recession were
replaced with worries about sharply rising interest rates, credit-tightening
actions by the Federal Reserve Board, the looming threat of inflation and the
uncertainty of the Y2K bug's effect on corporate earnings and the financial
markets. These fears adversely affected all the fixed-income markets during
1999, with Treasuries and municipal bonds suffering significant losses. As we
enter the new year, the high-yield market has yet to rebound as investors for
the most part remain on the sideline for the time being
On a more positive note, as a result of the weakness in the market over the past
year and a half, yields on lower-rated corporate bonds are now approaching their
highest levels in nearly a decade. Today, high-yield bonds are providing an
unusually large yield advantage over Treasuries. Historically, abnormally high
yield advantages have signaled a turning point in the high-yield market,
resulting in strong total returns as bond prices recovered.
PERFORMANCE
For the six-month period ended March 31, 2000, Morgan Stanley Dean Witter High
Income Advantage Trust produced a total return of -2.70 percent, based on a
change in net asset value (NAV) and reinvestment of distributions. For the same
period, the Trust's total return was -8.11 percent, based on a change in its
market price on the New York Stock Exchange (NYSE) and reinvestment of
distributions.
After eight years of the Trust maintaining a steady monthly dividend, its
Trustees recommended adjusting the Trust's distribution rate to better reflect
the current income-earning potential of its portfolio securities. Beginning with
the dividend declared on September 28, 1999, and
<PAGE> 2
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
payable on October 22, 1999, the Trust's monthly income dividend was set at
$0.0450 per share, down from the previous month's rate of $0.0500 per share. We
believe that the new target dividend rate will provide the Trust with added
investment flexibility. For the six-month period under review, the Trust paid
distributions totaling $0.27 per share.
PORTFOLIO STRATEGY
As discussed, the past year and a half has been an extremely difficult period
for the high-yield market, particularly the B-rated sector, the market's largest
sector. The result has been prolonged weakness in the high-yield market, causing
high-yield bond prices to decline sharply and yields to rise dramatically.
Although the Trust's position in the more defensive, higher quality end of the
market held up relatively well during the turbulent market environment, its
long-term core position in the B-rated sector was adversely affected. However,
with yields on B-rated issues at or near 10-year highs and many issues trading
at significant discounts to their stated maturity value, we view the B-rated
sector as extremely undervalued. In light of our positive long-term outlook, we
are maintaining our focus on this large sector of the market, which we believe
offers the Trust strong long-term total return potential.
From an industry perspective, we presently view the telecommunications sector as
an excellent investment opportunity, given the overwhelming trend toward
providing expanded worldwide telecommunications services, including voice, video
and data services over a combination of hardline and wireless networks. The
combination of very strong growth prospects for the industry, along with an
incentive to form strategic partnerships with other major players, provides the
fundamental backdrop for higher profitability and future significant credit
improvement. Included among the Trust's current holdings are a number of telecom
companies that recently have either announced important strategic partnerships
or have raised equity capital to fuel future growth and profits. These holdings
include Advanced Radio Telecom, American Mobile Satellite, Arch Communications,
CapRock Communications, Covad Communications, Dobson Communications, Level 3
Communications, NEXTLINK Communications, Primus Telecommunications, Versatel
Telecommunications, Viatel and WinStar Communications.
LOOKING AHEAD
In light of today's substantially higher yields and significantly discounted
bond prices, we view the high-yield market as an excellent long-term investment
opportunity, particularly given the current favorable economic outlook. Assuming
a soft landing in the economy with growth continuing into the second half of the
year, we would expect the high-yield market to recover and high-yield bond
prices to rebound
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
from their currently depressed levels. Although the B-rated segment of the
market has not been a good investment performer over the past year and a half,
we remain confident that its attractive yield and appreciation potential remain
intact for long-term 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. In accordance with this
procedure, 20,200 shares of the Trust were purchased on the New York Stock
Exchange over the six-month period ended March 31, 2000.
We appreciate your ongoing support of Morgan Stanley Dean Witter High Income
Advantage Trust and look forward to serving 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
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On December 21, 1999, 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>
Wayne E. Hedien
For......................................................... 24,419,960
Withheld.................................................... 824,227
Manuel H. Johnson
For......................................................... 24,451,271
Withheld.................................................... 792,916
John L. Schroeder
For......................................................... 24,417,556
Withheld.................................................... 826,631
</TABLE>
The following Trustees were not standing for reelection at this meeting:
Michael Bozic, Charles A. Fiumefreddo, Edwin J. Garn, Michael E. Nugent, and
Philip J. Purcell.
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS:
<TABLE>
<S> <C>
For......................................................... 24,306,530
Against..................................................... 295,983
Abstain..................................................... 641,674
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (94.8%)
Aerospace (0.9%)
$ 1,000 Sabreliner Corp. - 144A*............. 11.00 % 06/15/08 $ 830,000
-----------
Beverages - Non-Alcoholic (1.7%)
2,000 Sparkling Spring Water (Canada)...... 11.50 11/15/07 1,610,000
-----------
Books/Magazines (0.4%)
500 Perry-Judds, Inc. ................... 10.625 12/15/07 412,500
-----------
Broadcasting (1.0%)
350 STC Broadcasting, Inc. .............. 11.00 03/15/07 346,500
600 Tri-State Outdoor Mediagroup,
Inc. ................................ 11.00 05/15/08 582,000
-----------
928,500
-----------
Cable Television (6.4%)
2,000 21st Century Telecom Group, Inc. .... 12.25++ 02/15/08 1,380,000
7,000 Australis Holdings Property Ltd.
(Australia) (a)..................... 15.00++ 11/01/02 70,000
1,000 Knology Holdings, Inc. .............. 11.875++ 10/15/07 650,000
200 Optel, Inc. (Series B) (a)........... 13.00 02/15/05 178,000
4,600 Optel, Inc. (Series B) (a) (b)....... 11.50 07/01/08 3,818,000
-----------
6,096,000
-----------
Casino/Gambling (4.7%)
5,500 Aladdin Gaming Capital Corp.
(Series B).......................... 13.50++ 03/01/10 2,805,000
3,000 Fitzgeralds Gaming Corp.
(Series B) (b)...................... 12.25 12/15/04 1,620,000
-----------
4,425,000
-----------
Cellular Telephone (0.8%)
550 Dobson/Sygnet Communications......... 12.25 12/15/08 566,500
500 Dolphin Telecom PLC
(United Kingdom).................... 14.00++ 05/15/09 200,000
-----------
766,500
-----------
Construction/Agricultural
Equipment/Trucks (1.5%)
1,500 J.B. Poindexter & Co., Inc. ......... 12.50 05/15/04 1,417,500
-----------
Consumer Electronics/Appliances (0.6%)
9,000 International Semi-Tech
Microelectronics, Inc.
(Canada) (a)........................ 11.50++ 08/15/03 90,000
500 Windmere-Durable Holdings, Inc. ..... 10.00 07/31/08 475,000
-----------
565,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Specialties (1.8%)
$ 2,000 Samsonite Corp. ..................... 10.75 % 06/15/08 $ 1,685,000
-----------
Consumer/Business Services (5.5%)
600 Anacomp, Inc. (Series B)............. 10.875 04/01/04 564,000
1,242 Comforce Corp. (Series B)............ 15.00+ 12/01/09 434,803
3,000 Comforce Operating, Inc. ............ 12.00 12/01/07 1,650,000
2,600 Entex Information Services, Inc. .... 12.50 08/01/06 2,600,000
-----------
5,248,803
-----------
Containers/Packaging (2.9%)
700 Berry Plastics Corp. ................ 12.25 04/15/04 686,000
3,000 Envirodyne Industries, Inc. ......... 10.25 12/01/01 1,650,000
500 Impac Group Inc. (Series B).......... 10.125 03/15/08 410,000
-----------
2,746,000
-----------
Contract Drilling (1.2%)
1,900 Northern Offshore ASA (Series B)
(Norway)............................ 10.00 05/15/05 1,140,000
-----------
Diversified Electronic Products (0.9%)
1,000 High Voltage Engineering, Inc. ...... 10.75 08/15/04 810,000
-----------
Diversified Manufacturing (5.4%)
500 Eagle-Picher Industries, Inc. ....... 9.375 03/01/08 425,000
7,050 Jordan Industries, Inc. (Series B)... 11.75++ 04/01/09 4,723,500
-----------
5,148,500
-----------
Electronic Distributors (0.1%)
2,000 CHS Electronics, Inc. ............... 9.875 04/15/05 50,000
-----------
Environmental Services (0.4%)
500 Allied Waste North America Inc. ..... 10.00 08/01/09 375,000
-----------
Food Chains (1.4%)
500 Eagle Food Centers Inc. (a).......... 8.625 04/15/00 230,000
2,250 Pueblo Xtra International, Inc.
(Series C).......................... 9.50 08/01/03 1,102,500
-----------
1,332,500
-----------
Food Distributors (0.9%)
1,000 Fleming Companies, Inc. (Series B)... 10.625 07/31/07 875,000
-----------
Hotels/Resorts (1.5%)
1,000 Epic Resorts LLC (Series B).......... 13.00 06/15/05 650,000
1,200 Resort At Summerlin (Series B)....... 13.00 12/15/07 780,166
-----------
1,430,166
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Industrial Specialties (1.7%)
$ 600 Indesco International, Inc. ......... 9.75 % 04/15/08 $ 204,000
600 International Wire Group, Inc. ...... 11.75 06/01/05 606,000
1,000 Outsourcing Services Group, Inc.
(Series B).......................... 10.875 03/01/06 840,000
-----------
1,650,000
-----------
Internet Services (1.7%)
900 Cybernet Internet Services Inc. ..... 14.00 07/01/09 702,000
500 Globix Corp. - 144A*................. 12.50 02/01/10 460,000
500 PSINet, Inc. - 144A*................. 10.50 12/01/06 485,000
-----------
1,647,000
-----------
Medical Specialties (1.4%)
1,765 MEDIQ/PRN Life Support Services,
Inc. ................................ 11.00 06/01/08 176,500
2,000 Universal Hospital Services, Inc.
(issued 02/25/98)................... 10.25 03/01/08 760,000
1,000 Universal Hospital Services, Inc.
(issued 01/26/99).................... 10.25 03/01/08 380,000
-----------
1,316,500
-----------
Medical/Nursing Services (1.6%)
3,000 Pediatric Services of America, Inc.
(Series A).......................... 10.00 04/15/08 1,500,000
-----------
Military/Gov't/Technical (0.4%)
600 Loral Space & Communications Ltd. ... 9.50 01/15/06 426,000
-----------
Movies/Entertainment (0.2%)
500 Regal Cinemas Inc. .................. 9.50 06/01/08 215,000
-----------
Office Equipment/Supplies (1.7%)
2,400 Mosler, Inc. ........................ 11.00 04/15/03 1,584,000
-----------
Oil Refining/Marketing (0.0%)
3,000 Transamerican Refining Corp.
(Series B) (a) (b).................. 16.00 06/30/03 37,500
-----------
Other Telecommunications (10.9%)
2,000 Birch Telecom Inc. .................. 14.00 06/15/08 2,000,000
1,000 DTI Holdings, Inc. (Series B)........ 12.50++ 03/01/08 505,000
600 Esprit Telecom Group PLC (United
Kingdom)............................ 10.875 06/15/08 522,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,400 Firstworld Communications, Inc. ..... 13.00++% 04/15/08 $ 1,649,000
500 Globenet Comm Group Ltd. (Bermuda)... 13.00 07/15/07 500,000
600 Pac-West Telecomm Inc. (Series B).... 13.50 02/01/09 618,000
1,000 Primus Telecommunication Group, Inc.
(Series B).......................... 9.875 05/15/08 870,000
500 Versatel Telecom International BV
(Netherlands)....................... 13.25 05/15/08 512,500
600 Viatel Inc. ......................... 11.25 04/15/08 546,000
500 Viatel Inc. ......................... 11.50 03/15/09 460,000
2,000 World Access, Inc. (c)............... 13.25 01/15/08 1,700,000
500 Worldwide Fiber Inc. (Canada)........ 12.00 08/01/09 475,000
-----------
10,357,500
-----------
Package Goods/Cosmetics (2.5%)
2,317 J.B. Williams Holdings, Inc. ........ 12.00 03/01/04 2,363,340
-----------
Printing/Forms (0.5%)
1,000 Premier Graphics Inc. ............... 11.50 12/01/05 447,500
-----------
Restaurants (5.2%)
12,252 American Restaurant Group Holdings,
Inc. - 144A* (c).................... 0.00 12/15/05 3,430,420
3,000 FRD Acquisition Corp. (Series B)..... 12.50 07/15/04 1,050,000
600 Friendly Ice Cream Corp. ............ 10.50 12/01/07 420,000
-----------
4,900,420
-----------
Retail - Specialty (1.0%)
600 Pantry, Inc. ........................ 10.25 10/15/07 528,000
500 Petro Stopping Centers L.P. ......... 10.50 02/01/07 435,000
-----------
963,000
-----------
Specialty Foods/Candy (2.4%)
15,356 SFAC New Holdings Inc. (c)........... 13.00++ 06/15/09 2,303,448
-----------
Telecommunications (10.3%)
550 Caprock Communications Corp.
(Series B).......................... 12.00 07/15/08 544,500
500 Covad Communications Group, Inc. .... 12.50 02/15/09 455,000
2,000 e. Spire Communications, Inc. ....... 13.75 07/15/07 1,440,000
1,000 Focal Communications Corp.
(Series B).......................... 12.125++ 02/15/08 655,000
600 GST Equipment Funding, Inc. ......... 13.25 05/01/07 450,000
500 Hyperion Telecommunication, Inc.
(Series B).......................... 12.25 09/01/04 520,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 600 Level 3 Communications, Inc. ........ 9.125% 05/01/08 $ 516,000
550 NEXTLINK Communications, Inc. ....... 12.50 04/15/06 566,500
17,700 Normex Technologies Corp. (Series B)
(a) (b)............................. 14.00++ 05/15/02 1,770,000
1,800 Rhythms Netconnections............... 12.75 04/15/09 1,539,000
500 Startec Global Communications
Corp. ............................... 12.00 05/15/08 455,000
1,000 Talton Holdings, Inc. (Series B)..... 11.00 06/30/07 900,000
-----------
9,811,000
-----------
Wireless Communications (13.3%)
4,000 Advanced Radio Telecom Corp. ........ 14.00 02/15/07 3,840,000
900 AMSC Aquisition Co. Inc.
(Series B).......................... 12.25 04/01/08 706,500
300 Arch Escrow Corp. ................... 13.75 04/15/08 264,000
440 CellNet Data Systems, Inc. - 144A*
(a)................................. 15.00 05/15/00 440,000
8,000 CellNet Data Systems, Inc. (a)....... 14.00++ 10/01/07 640,000
1,000 Globalstar LP/Capital Corp. ......... 11.50 06/01/05 365,000
1,200 Orbcomm Global LP/Capital Corp. ..... 14.00 08/15/04 1,140,000
2,300 Paging Network, Inc. ................ 10.00 10/15/08 1,564,000
1,600 Paging Network, Inc. (b)............. 10.125 08/01/07 1,088,000
2,000 USA Mobile Communications Holdings,
Inc. ............................... 14.00 11/01/04 1,870,000
600 Winstar Equipment Corp. ............. 12.50 03/15/04 678,000
-----------
12,595,500
-----------
TOTAL CORPORATE BONDS
(Identified Cost $134,777,822)............................ 90,009,677
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<C> <S> <C>
COMMON STOCKS (d) (0.2%)
Casino/Gambling (0.0%)
2,000 Fitzgeralds Gaming Corp................................... 2
-----------
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 (0.0%)
211,076 Raintree Healthcare Corp. (c)............................. 1,900
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------------------------------------------------------------------------------
<C> <S> <C>
Motor Vehicles (0.0%)
113 Northern Holdings Industrial Corp. (c).................... --
-----------
Other Telecommunications (0.1%)
6,284 World Access, Inc. (c).................................... $ 119,789
-----------
Restaurants (0.0%)
9,500 American Restaurant Group Holdings, Inc. - 144A*.......... 2,375
-----------
Specialty Foods/Candy (0.1%)
835 SFAC New Holdings Inc. (c)................................ 208
180,000 Specialty Foods Acquisition Corp. - 144A*................. 45,000
-----------
45,208
-----------
Telecommunication Equipment (0.0%)
80,266 FWT, Inc. (Class A) (c)................................... 803
-----------
Textiles (0.0%)
223,846 United States Leather, Inc. (c)........................... 2,238
-----------
TOTAL COMMON STOCKS
(Identified Cost $19,765,264)............................. 181,837
-----------
PREFERRED STOCKS (0.4%)
Oil Refining/Marketing (0.0%)
5,266 Transamerica Refining Corp. (Conv.) (Class B)*............ 53
2,896 Transamerica Refining Corp. (Conv.) (Class C)*............ 29
7,635 Transamerica Refining Corp. (Conv.) (Class D)*............ 76
15,797 Transamerica Refining Corp. (Conv.) (Class E)*............ 158
-----------
316
-----------
Telecommunication Equipment (0.4%)
802,666 FWT, Inc. (Series A) (c).................................. 401,333
-----------
TOTAL PREFERRED STOCKS
(Identified Cost $3,244,306).............................. 401,649
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
--------- ----------
<C> <S> <C> <C>
WARRANTS (d) (1.8%)
Aerospace (0.1%)
5,000 Sabreliner Corp. - 144A*...................... 04/15/03 50,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C>
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 10
1,000 Resort At Summerlin - 144A*................... 12/15/07 10
-----------
20
-----------
Internet Services (0.1%)
900 Cybernet Internet Services Inc. - 144A*....... 07/01/09 90,000
-----------
Oil Refining/Marketing (0.0%)
3,000 Transamerican Refining Corp. - 144A*.......... 06/30/03 3
-----------
Other Telecommunications (1.5%)
2,000 Birch Telecom Inc. - 144A*.................... 06/15/08 110,000
5,000 DTI Holdings Inc. - 144A*..................... 03/01/08 50
3,400 Firstworld Communications, Inc. - 144A*....... 04/15/08 629,000
1,000 Versatel Telecom BV - 144A* (Netherlands)..... 05/15/08 700,000
-----------
1,439,050
-----------
Telecommunications (0.0%)
500 Startec Global Communications Corp. - 144A*... 05/15/08 9,000
-----------
Wireless Communications (0.1%)
900 American Mobile Satellite Corp. - 144A*....... 04/01/08 103,500
-----------
TOTAL WARRANTS
(Identified Cost $461,463)................................ 1,692,023
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
--------- ------- ---------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (0.2%)
REPURCHASE AGREEMENT
$ 185 The Bank of New York (dated 03/31/00;
proceeds $185,122) (e)
(Identified Cost $185,029).......... 6.063% 04/03/00 185,029
-----------
TOTAL INVESTMENTS
(Identified Cost $158,433,884) (f)............... 97.4%
92,470,215
OTHER ASSETS IN EXCESS OF LIABILITIES.............. 2.6
2,499,431
----- -----------
NET ASSETS....................................... 100.0%
$94,969,646
----- ===========
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
---------------------
* Resale is restricted to qualified institutional investors.
+ Payment-in-kind security.
++ Currently a zero coupon bond and 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 $186,938 U.S. Treasury Note 5.875% due 11/30/01 valued at
$188,730.
(f) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $4,010,037 and the
aggregate gross unrealized depreciation is $69,973,706, resulting in net
unrealized depreciation of $65,963,669.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000 (unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $158,433,884).......... $92,470,215
Interest receivable...................... 2,632,755
Prepaid expenses and other assets........ 31,863
-----------
TOTAL ASSETS......................... 95,134,833
-----------
LIABILITIES:
Investment management fee payable........ 70,781
Accrued expenses and other payables...... 94,406
-----------
TOTAL LIABILITIES.................... 165,187
-----------
NET ASSETS........................... $94,969,646
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $254,324,638
Net unrealized depreciation.............. (65,963,669)
Accumulated undistributed net investment
income.................................. 1,347,987
Accumulated net realized loss............ (94,739,310)
-----------
NET ASSETS........................... $94,969,646
===========
NET ASSET VALUE PER SHARE,
29,997,052 shares outstanding (unlimited
shares authorized of $.01 par value).... $3.17
=====
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the six months ended March 31, 2000 (unaudited)
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 8,201,643
------------
EXPENSES
Investment management fee................ 374,400
Transfer agent fees and expenses......... 42,298
Professional fees........................ 31,897
Shareholder reports and notices.......... 18,879
Registration fees........................ 16,336
Trustees' fees and expenses.............. 8,599
Custodian fees........................... 3,329
Other.................................... 5,872
------------
TOTAL EXPENSES....................... 501,610
------------
NET INVESTMENT INCOME................ 7,700,033
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................ 371,707
Net change in unrealized depreciation.... (10,253,122)
------------
NET LOSS............................. (9,881,415)
------------
NET DECREASE............................. $ (2,181,382)
============
</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 FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 2000 SEPTEMBER 31, 1999
---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 7,700,033 $ 17,091,069
Net realized gain (loss)........................... 371,707 (3,793,847)
Net change in unrealized depreciation.............. (10,253,122) (23,002,126)
----------- ------------
NET DECREASE................................... (2,181,382) (9,704,904)
Dividends from net investment income............... (8,101,780) (18,199,121)
Decrease from transactions in shares of beneficial
interest.......................................... (64,964) --
----------- ------------
NET DECREASE................................... (10,348,126) (27,904,025)
NET ASSETS:
Beginning of period................................ 105,317,772 133,221,797
----------- ------------
END OF PERIOD
(Including undistributed net investment income
of $1,347,987 and $1,749,734, respectively).... $94,969,646 $105,317,772
=========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter High Income Advantage Trust (the "Trust") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company. The Trust's primary
investment objective is to earn a high level of current income and, as a
secondary objective, capital appreciation, but only when consistent with its
primary objective. The Trust 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, 2000 (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 accredited 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.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended March 31, 2000 aggregated
$5,943,538 and $8,396,072, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Trust's transfer agent. At March 31, 2000, the Trust had transfer agent fees
and expenses payable of approximately $200.
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, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,467. At March 31, 2000, the Trust had an accrued pension liability of
$52,152 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, 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
Treasury shares purchased and retired (weighted average
discount 2.25%)*........................................... (20,200) (202) (64,762)
---------- -------- ------------
Balance, March 31, 2000..................................... 29,997,052 $299,970 $254,024,668
========== ======== ============
</TABLE>
---------------------
* The Trustees have voted to retire the shares purchased.
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 28, 2000 $0.045 April 7, 2000 April 20, 2000
April 25, 2000 $0.045 May 5, 2000 May 19, 2000
</TABLE>
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER HIGH INCOME ADVANTAGE TRUST
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
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.
At 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.
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, 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period................... $ 3.51 $ 4.44 $ 5.18 $ 5.22 $ 5.30 $ 5.32
--------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income................................. 0.26 0.57 0.62 0.63 0.66 0.61
Net realized and unrealized gain (loss)............... (0.33) (0.89) (0.72) -- (0.14) 0.01
--------- -------- -------- -------- -------- --------
Total income (loss) from investment operations......... (0.07) (0.32) (0.10) 0.63 0.52 0.62
--------- -------- -------- -------- -------- --------
Dividends from net investment income................... (0.27) (0.61) (0.64) (0.67) (0.60) (0.64)
--------- -------- -------- -------- -------- --------
Net asset value, end of period......................... $ 3.17 $ 3.51 $ 4.44 $ 5.18 $ 5.22 $ 5.30
========= ======== ======== ======== ======== ========
Market value, end of period............................ $ 3.63 $ 4.25 $ 5.25 $ 6.25 $ 6.00 $ 5.75
========= ======== ======== ======== ======== ========
TOTAL RETURN+.......................................... (8.11)%(1) (8.83)% (6.52)% 16.26% 15.53% 14.59%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... 1.00%(2) 1.00% 0.95% 0.92% 0.92% 1.01%
Net investment income.................................. 15.42%(2) 14.36% 12.58% 12.43% 12.50% 11.79%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................ $94,970 $105,318 $133,222 $155,540 $156,738 $159,167
Portfolio turnover rate................................ 6%(1) 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
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, 2000
