<PAGE>
TCW/DW STRATEGIC INCOME TRUST
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS August 31, 1997
DEAR SHAREHOLDER:
We are pleased to present the first annual report to shareholders of TCW/DW
Strategic Income Trust. The Fund is a diversified mutual fund that allocates
under normal market conditions at least 30 percent of its investments to each
of three types of fixed-income securities; investment-grade corporate bonds,
high-yield corporate bonds and mortgage-backed securities. The Fund seeks to
achieve a high level of current income and the potential for capital
appreciation. The Fund commenced operations on November 26, 1996.
MIXED SIGNALS FROM THE ECONOMY
Investors began the year looking for weaker economic growth in 1997, but
their sentiments shifted as a stronger than expected 1996 fourth-quarter GDP
report, buoyed by robust exports, surprised the market. During the first
quarter of 1997, Federal Reserve Board Chairman Alan Greenspan acknowledged
that the prospects for further growth in the economy appeared favorable, but
he warned that preemptive action might be warranted to ensure that inflation
remained under control. As a result, investors began to give more credence to
the possibility of a Fed tightening, which in fact occurred on March 25.
Economic statistics released during the second and third quarters of 1997
displayed a mixed view of economic growth. Slower activity was reported in
such consumer areas as automobiles, retail sales and housing. Alternatively,
several notable indicators of economic strength appeared, including the
lowest unemployment rate in over two decades, and consumer confidence levels
posted all-time highs. Inflation measures continue to remain benign and
productivity gains have been excellent.
INVESTMENT-GRADE CORPORATES
The investment-grade corporate bond market has remained remarkably resilient,
despite showing signs of weakness in the form of spread widening during the
late summer months. Technical conditions have
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 1997, continued
remained strong in the face of a spate of new issues. Strengthening market
factors and a favorable economic backdrop suggest that this positive momentum
will persist.
HIGH-YIELD CORPORATES
The high-yield corporate sector has generated very favorable returns for
investors during the period under review. This performance has been driven
principally by the moderate rate of economic growth and strong technical
position of the market. Large high-yield mutual fund cash inflows, as well as
increased allocations to high-yield securities by institutional investors,
have provided significant support for the high-yield market. The strong
demand for these bonds has been met by heavy new issuance. New corporate cash
flows, excess liquidity in the banking sector and strong equity valuations
have helped to keep default rates relatively low. These default rates in turn
have resulted in a marked narrowing of risk premiums in the high-yield
market.
MORTGAGE-BACKED SECURITIES
Investor demand also remains strong in the mortgage-backed securities sector.
Even though mortgage spreads have tightened, the sector has retained its
yield advantage over other fixed-income securities. Mortgage spreads should
remain relatively stable in the coming months unless the yield on the 10-year
U.S. Treasury falls below 6 percent, renewing prepayment fears.
Collateralized mortgage obligation (CMO) issuance in 1997 is now in excess of
$80 billion, which has helped support the mortgage market as a whole.
GROWTH OF $10,000 (CLASS B SHARES)
DATE TOTAL LEHMAN (4) LIPPER (5)
---- ----- ---------- ----------
November 26, 1996 $10,000 $10,000 $10,000
November 30, 1996 $10,020 $10,000 $10,000
December 31, 1996 $9,990 $9,936 $10,023
January 31, 1997 $10,051 $9,975 $10,087
February 28, 1997 $10,131 $9,994 $10,186
March 31, 1997 $9,999 $9,925 $10,000
April 30, 1997 $10,112 $10,041 $10,093
May 31, 1997 $10,245 $10,124 $10,290
June 30, 1997 $10,358 $10,216 $10,449
July 31, 1997 $10,607 $10,424 $10,689
August 31, 1997 $10,045(3) $10,300 $10,635
CUMULATIVE TOTAL RETURNS
-----------------------
5.45 (1)
0.45 (2)
- -------------------------------------------------------------------------------
-- Fund -- S&P 500 (4) -- Lipper (5)
- -------------------------------------------------------------------------------
Past performance is not predictive of future returns
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable contingent deferred sales charge (CDSC) (since
inception-5%). See the Fund's current prospectus for complete details on
fees and sales charges.
(3) Closing value after assuming a complete redemption on August 31, 1997.
(4) The Lehman Brothers Mutual Fund Government/Corporate Intermediate Bond
Index tracks the performance of government and corporate bonds, including
US Government agency and US Treasury securities and corporate and Yankee
bonds with maturities of 1 to 10 years. The performance of the index
does not include any expenses, fees or charges. The index is unmanaged
and should not be considered an investment.
(5) The Lipper Multi-Sector Income Average tracks the performance of all
funds that seek current income by allocating assets among several different
fixed income securities sectors (with no more than 65% in any one sector
except for defensive purposes), including US government and foreign
governments, with a significant portion of assets in securities rated
below investment grade, as reported by Lipper Analytical Services, Inc.
PERFORMANCE AND PORTFOLIO STRATEGY
On July 28, 1997, TCW/DW Strategic Income Trust began offering four classes
of shares: A, B, C and D, each with its own sales charge and distribution fee
structure. A revised
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
LETTER TO THE SHAREHOLDERS August 31, 1997, continued
prospectus, which includes complete details regarding the Fund's conversion
to multiple classes of shares, was mailed to shareholders in mid-summer.
The Fund's Class B shares produced a total return of 5.45 percent for the
period since the Fund's inception on November 26, 1996, through the fiscal
year end of August 31, 1997. This compares to returns of 3.00 percent for the
Lehman Brothers Mutual Fund Government/Corporate Intermediate Bond Index
(Lehman Index) and 6.35 percent for the Lipper Multi-Sector Income Average
(Lipper Average). During the period, the Fund's Class B shares distributed
income dividends of $.45 per share. The accompanying chart illustrates the
growth of a $10,000 investment in the Fund's Class B shares since inception
through the fiscal year ended August 31, 1997, compared to similar
hypothetical investments in the issues that comprise the Lehman Index and the
Lipper Average.
As of August 31, 1997, the Fund held its largest investment-grade corporate
positions in the industrial and financial sectors, while the high-yield
segment of the Fund emphasized industries such as media, retailing and
manufacturing. The Fund's mortgages were concentrated mainly in 15-year FNMA
mortgage pass-throughs, which have performed well as spreads have tightened.
LOOKING AHEAD
As we enter the new fiscal year, economic strength is once again
overshadowing the inflation picture. While inflation still appears dormant,
it is unknown just how long the economy can continue to grow at a rate of 3.5
percent or better in conjunction with low unemployment before inflation is
ignited. What is known is that the Federal Reserve Board has clearly
expressed its intention to raise interest rates in the face of inflationary
threats. Given these uncertainties, we will continue to monitor events
carefully and position the Fund accordingly.
We appreciate your support of TCW/DW Strategic Income Trust and look forward
to continuing to serve your financial needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (59.2%)
Aerospace & Defense (1.0%)
$100 Lockheed Martin Corp. .......................................... 7.25 % 05/15/06 $ 102,252
------------
Automotive (1.0%)
100 General Motors Corp. ........................................... 7.10 03/15/06 101,340
------------
Banks (5.8%)
100 Chase Manhattan Corp. .......................................... 6.50 08/01/05 97,572
100 Citicorp ....................................................... 7.125 05/15/06 100,925
100 First Chicago NBD .............................................. 6.125 02/15/06 94,522
50 First Nationwide ............................................... 12.25 05/15/01 55,250
25 First Nationwide Escrow ........................................ 10.625 10/01/03 27,375
100 NationsBank Corp. .............................................. 7.50 09/15/06 103,172
100 Wells Fargo & Co. .............................................. 6.125 11/01/03 96,568
------------
575,384
------------
Beverages - Soft Drinks (1.6%)
100 Coca-Cola Enterprises, Inc. .................................... 7.875 02/01/02 105,243
50 Delta Beverage Group ........................................... 9.75 12/15/03 52,125
------------
157,368
------------
Broadcast Media (1.1%)
50 Cablevision System Corp. ....................................... 9.875 05/15/06 53,375
50 Jones Intercable, Inc. ......................................... 8.875 04/01/07 52,000
------------
105,375
------------
Building Materials (1.5%)
100 Atrium Companies, Inc. - 144A* ................................. 10.50 11/15/06 102,500
50 Building Materials Corp. of America - 144A* ..................... 8.625 12/15/06 51,500
------------
154,000
------------
Business Services (0.2%)
25 Big Flower Press Inc. - 144A* .................................. 8.875 07/01/07 24,813
------------
Chemicals (0.8%)
25 Foamex L.P. - 144A* ............................................. 9.875 06/15/07 25,375
50 ISP Holdings Inc. (Series B) .................................... 9.00 10/15/03 51,875
------------
77,250
------------
Commercial Services (0.2%)
20 Jorgensen Earle M. Co. ......................................... 10.75 03/01/00 20,300
------------
Conglomerates (1.0%)
100 Tyco International, Ltd. ....................................... 6.375 01/15/04 97,592
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer - Noncyclical (1.1%)
$50 American Safety Razor Co. Inc.
(Series B) ..................................................... 9.875% 08/01/05 $ 52,750
50 International Home Foods, Inc. ................................. 10.375 11/01/06 52,625
------------
105,375
------------
Containers (2.1%)
50 Consumers International Inc. ................................... 10.25 04/01/05 53,750
100 Plastic Containers, Inc. (Series B) ............................. 10.00 12/15/06 104,250
50 U. S. Can Corp. (Series B) ..................................... 10.125 10/15/06 52,500
------------
210,500
------------
Distribution (1.1%)
100 Iron Mountain, Inc. ............................................ 10.125 10/01/06 108,750
------------
Energy (1.7%)
150 Transamerican Energy - 144A* .................................... 11.50 06/15/02 145,875
25 Transamerican Energy - 144A* .................................... 13.00 + 06/15/02 19,063
------------
164,938
------------
Entertainment/Gaming & Lodging (5.1%)
15 Alliance Gaming Corp. - 144A* ................................... 10.00 08/01/07 14,700
50 California Hotel Finance Corp. ................................. 11.00 12/01/02 52,563
50 Cinemark USA Inc. (Series B) .................................... 9.625 08/01/08 50,750
25 Grand Casinos, Inc. ............................................ 10.125 12/01/03 26,688
100 HMC Acquisition Properties Inc.
(Series B) .................................................... 9.00 12/15/07 102,249
50 Outdoor Systems, Inc. .......................................... 9.375 10/15/06 52,500
35 Outdoor Systems, Inc. - 144A* ................................... 8.875 06/15/07 35,700
50 Showboat Inc. .................................................. 9.25 05/01/08 51,750
25 Signature Resorts, Inc. - 144A* ................................. 9.75 10/01/07 24,625
100 Walt Disney Co. (Series B) ..................................... 6.75 03/30/06 99,870
------------
511,395
------------
Financial (5.1%)
100 Associates Corp. N.A. .......................................... 6.00 06/15/00 98,959
100 BankAmerica Corp. .............................................. 7.125 03/01/09 100,810
100 Bear Stearns Co., Inc. ......................................... 6.75 05/01/01 100,512
100 Fleet Financial Group, Inc. .................................... 7.125 04/15/06 100,282
100 Ford Motor Credit Corp. ........................................ 8.20 02/15/02 106,002
------------
506,565
------------
Forest Products (2.1%)
100 International Paper Co. ........................................ 7.00 06/01/01 101,165
100 Specialty Paperboard, Inc. (Series B) .......................... 9.375 10/15/06 104,500
------------
205,665
------------
Gas (1.0%)
100 Praxair, Inc. .................................................. 6.75 03/01/03 100,058
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gas Transmission (1.0%)
$100 Enron Corp. .................................................... 7.125% 05/15/07 $ 101,072
------------
Healthcare Services (0.2%)
20 Integrated Health Services Inc. - 144A* ........................ 9.50 09/15/07 20,600
------------
Hospital Management (1.1%)
100 Dade International, Inc. (Series B) ............................ 11.125 05/01/06 113,000
------------
Leasing (1.0%)
100 General American Transportation Corp. .......................... 6.75 03/01/06 98,234
------------
Manufacturing (0.5%)
50 Sweetheart Cup ................................................. 10.50 09/01/03 49,375
------------
Media Group (2.6%)
50 Adams Outdoor Advertising Ltd. ................................. 10.75 03/15/06 54,250
100 Jacor Communications Co. ....................................... 9.75 12/15/06 105,000
100 News America Holdings, Inc. .................................... 7.375 10/17/08 100,635
------------
259,885
------------
Metals & Mining (2.1%)
100 AK Steel Corp. - 144A* .......................................... 9.125 12/15/06 105,125
100 WCI Steel, Inc. (Series B) ...................................... 10.00 12/01/04 106,000
------------
211,125
------------
Pharmaceuticals (1.1%)
100 Lilly (Eli) & Co. .............................................. 8.125 12/01/01 106,013
------------
Publishing (0.5%)
50 K-III Communications Corp. ..................................... 10.25 06/01/04 54,000
------------
Retail (1.8%)
100 Finlay Fine Jewelry Corp. ....................................... 10.625 05/01/03 105,750
63 Guitar Center Management Inc. ................................... 11.00 07/01/06 68,828
------------
174,578
------------
Retail - Department Stores (2.6%)
150 Federated Department Stores, Inc. .............................. 8.125 10/15/02 158,541
100 May Department Stores Co. ...................................... 7.45 09/15/11 102,993
------------
261,534
------------
Retail - Drug Store (0.1%)
15 Di Giorgio Corp. - 144A* ........................................ 10.00 06/15/07 14,850
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail - Food Chains (2.2%)
$50 Marsh Supermarkets, Inc. - 144A* ............................... 8.875% 08/01/07 $ 49,625
125 Smith's Food & Drug Centers, Inc. .............................. 11.25 05/15/07 147,813
25 Stater Bros. Holdings, Inc. - 144A* ............................. 9.00 07/01/04 25,375
------------
222,813
------------
Telecommunications (2.9%)
100 Comcast Cellular Corp. - 144A* .................................. 9.50 05/01/07 103,500
50 Jordan Telecommunication
Products - 144A* .............................................. 9.875 08/01/07 49,500
100 STC Broadcasting, Inc. - 144A* .................................. 11.00 03/15/07 106,750
25 Telex Communications, Inc. - 144A* ............................. 10.50 05/01/07 25,938
------------
285,688
------------
Telephones (1.9%)
100 GTE South, Inc. ................................................ 6.00 02/15/08 93,309
100 MCI Communications Corp. ....................................... 6.95 08/15/06 100,861
------------
194,170
------------
Transportation (1.3%)
25 Atlas Air, Inc. - 144A* ......................................... 10.75 08/01/05 25,625
100 Norfolk Southern Corp. ......................................... 7.35 05/15/07 102,710
------------
128,335
------------
Utilities - Electric (2.8%)
75 California Energy .............................................. 10.25 01/15/04 80,813
100 PacifiCorp ..................................................... 6.12 01/15/06 94,794
100 Union Electric Co. ............................................. 6.75 05/01/08 99,098
------------
274,705
------------
TOTAL CORPORATE BONDS
(Identified Cost $5,894,144) ....................................................... 5,898,897
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (28.7%)
439 Federal Home Loan Mortgage Corp. ............................... 7.00 12/15/03 442,555
423 Federal Home Loan Mortgage Corp. ............................... 6.50 08/01/11 417,309
397 Federal Home Loan Mortgage Corp. ............................... 7.00 03/01/12 398,852
202 Federal Home Loan Mortgage Corp.
1551 M (CMO) .................................................. 7.00 12/15/07 199,705
293 Federal National Mortgage Assoc. ............................... 7.50 09/01/01 298,113
50 Federal National Mortgage Assoc. ............................... 9.75 11/01/03 52,000
423 Federal National Mortgage Assoc. ............................... 6.50 11/01/11 416,974
433 Federal National Mortgage Assoc. ............................... 7.00 11/01/11 433,958
200 U.S. Treasury Note ............................................. 6.25 02/15/07 197,977
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Identified Cost $2,808,758) ....................................................... 2,857,443
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
PORTFOLIO OF INVESTMENTS August 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (11.5%)
U.S. GOVERNMENT AGENCIES (a) (7.5%)
$400 Federal Home Loan Banks ........................................ 5.43% 09/12/97 $ 399,336
350 Federal National Mortgage Assoc. ............................... 5.40 09/26/97 348,688
------------
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $748,024) .......................................................... 748,024
------------
REPURCHASE AGREEMENT (4.0%)
400 The Bank of New York ........................................... 5.25 09/02/97
(dated 8/29/97; proceeds $400,144)(b)
(Identified Cost $399,911) ........................................................ 399,911
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $1,147,935) ....................................................... 1,147,935
------------
TOTAL INVESTMENTS
(Identified Cost $9,850,837)(c) ......................................... 99.4% 9,904,275
OTHER ASSETS IN EXCESS OF LIABILITIES ................................... 0.6 57,050
------ ------------
NET ASSETS .............................................................. 100.0% $9,961,325
====== ============
</TABLE>
- ------------
CMO Collateralized Mortgage Obligation.
* Resale is restricted to qualified institutional investors.
+ Currently a zero coupon bond which will pay interest at the rate
shown at a future specified date.
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent
yield.
(b) Collateralized by $393,691 U.S. Treasury Note 6.625% due 05/17/07
valued at $407,909.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$92,021 and the aggregate gross unrealized depreciation is $38,583,
resulting in net unrealized appreciation of $53,438.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $9,850,837)........... $ 9,904,275
Receivable for:
Interest ............................. 151,257
Shares of beneficial interest sold .. 29,526
Deferred organizational expenses ....... 102,624
Receivable from affiliate .............. 13,771
Prepaid expenses and other assets ...... 28,170
------------
TOTAL ASSETS ......................... 10,229,623
------------
LIABILITIES:
Payable for:
Investments purchased................. 100,268
Shares of beneficial interest
repurchased ......................... 15,120
Plan of distribution fee ............. 6,145
Dividends to shareholders ............ 2,339
Accrued expenses and other payables .... 41,802
Organizational expenses ................ 102,624
------------
TOTAL LIABILITIES..................... 268,298
------------
NET ASSETS ........................... $ 9,961,325
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ........................ $ 9,878,192
Net unrealized appreciation ............ 53,438
Undistributed net investment income ... 45,857
Net realized loss....................... (16,162)
------------
NET ASSETS ........................... $ 9,961,325
============
CLASS A SHARES:
Net Assets ............................. $ 10,011
Shares Outstanding
(unlimited authorized, $.01 par value) 993
NET ASSET VALUE PER SHARE ............ $ 10.08
============
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 4.44% of
net asset value) .................... $ 10.53
============
CLASS B SHARES:
Net Assets ............................. $ 9,931,296
Shares Outstanding
(unlimited authorized, $.01 par value) 984,709
NET ASSET VALUE PER SHARE ............ $ 10.09
============
CLASS C SHARES:
Net Assets ............................. $ 10,004
Shares Outstanding
(unlimited authorized, $.01 par value) 992
NET ASSET VALUE PER SHARE ............ $ 10.08
============
CLASS D SHARES:
Net Assets ............................. $ 10,014
Shares Outstanding
(unlimited authorized, $.01 par value) 993
NET ASSET VALUE PER SHARE ............ $ 10.08
============
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
For the period November 26, 1996* through August 31, 1997**
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME .......................... $463,799
-----------
EXPENSES
Organizational expenses .................. 77,376
Professional fees ........................ 48,336
Plan of distribution fee (Class B
shares).................................. 46,556
Trustees' fees and expenses............... 29,576
Management fee ........................... 22,356
Investment advisory fee .................. 14,904
Shareholder reports and notices .......... 14,301
Custodian fees ........................... 8,314
Transfer agent fees and expenses.......... 3,593
Other..................................... 7,869
-----------
TOTAL EXPENSES ......................... 273,181
Less: amounts waived/reimbursed........... (226,616)
-----------
NET EXPENSES ........................... 46,565
-----------
NET INVESTMENT INCOME .................. 417,234
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ........................ (16,162)
Net unrealized appreciation .............. 53,438
-----------
NET GAIN................................ 37,276
-----------
NET INCREASE ............................. $454,510
===========
</TABLE>
- ------------
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 26, 1996*
THROUGH
AUGUST 31, 1997**
- --------------------------------------------------------------- ------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .......................................... $ 417,234
Net realized loss .............................................. (16,162)
Net unrealized appreciation .................................... 53,438
------------------
NET INCREASE ................................................. 454,510
------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A shares ............................................... (53)
Class B shares ............................................... (375,574)
Class C shares ............................................... (49)
Class D shares ............................................... (56)
------------------
TOTAL DIVIDENDS .............................................. (375,732)
------------------
Net increase from transactions in shares of beneficial interest 9,782,547
------------------
NET INCREASE ................................................. 9,861,325
NET ASSETS:
Beginning of period ............................................ 100,000
------------------
END OF PERIOD
(Including undistributed net investment income of $45,857) .. $9,961,325
==================
</TABLE>
- ------------
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1997
1. ORGANIZATIONAL AND ACCOUNTING POLICIES
TCW/DW Strategic Income Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, diversified
management investment company. The Fund's primary investment objective is to
generate a high level of current income. The Fund seeks to achieve its
objective by allocating its investments among three distinct types of fixed
income securities: investment-grade corporate, mortgage-backed and high yield
corporate securities. The Fund was organized as a Massachusetts business
trust on June 27, 1996 and had no other operations other than those relating
to organizational matters and the issuance of 10,000 shares of beneficial
interest for $100,000 to Dean Witter InterCapital Inc. ("InterCapital"), an
affiliate of Dean Witter Services Company Inc. (the "Manager"), to effect the
Fund's initial capitalization. The Fund commenced operations on November 26,
1996. On July 28, 1997, the Fund commenced offering three additional classes
of shares, with the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
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 securities are traded on more than one exchange,
the securities are 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 TCW Funds Management, Inc. (the "Adviser")
that sale or 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
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1997, continued
of the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain 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
securities valued by such pricing service; and (5) short-term debt securities
having a maturity date of more than sixty days at time of purchase are valued
on a mark-to-market basis until sixty days prior to maturity and thereafter
at amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Discounts are accreted over the life of the respective securities.
Dividend income and other distributions are recorded on the ex-dividend date.
Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund'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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend 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
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1997, continued
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.
F. ORGANIZATIONAL EXPENSES -- InterCapital paid the organizational expenses
of the Fund in the amount of approximately $180,000 and will be reimbursed
for the full amount thereof exclusive of any amounts assumed. Such expenses
have been deferred and are being amortized on the straight-line method over a
period not to exceed five years from the commencement of operations.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management
fee, accrued daily and payable monthly, by applying the annual rate of 0.36%
to the net assets of the Fund determined as of the close of each business
day.
Under the terms of the Management Agreement, the Manager maintains certain of
the Fund'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 Fund who are
employees of the Manager. The Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
InterCapital has undertaken to assume all operating expenses (except for any
plan of distribution fees) and the Manager has agreed to waive the
compensation provided for in its Management Agreement and the Adviser has
agreed to waive the compensation provided for in its Investment Advisory
Agreement until the Fund has $50 million of net assets or February 28, 1998,
whichever occurs first.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the annual rate
of 0.24% to the net assets of the Fund determined as of the close of each
business day.
Under the terms of the Investment Advisory Agreement, the Fund has retained
the Adviser to invest the Fund's assets, including placing orders for the
purchase and sale of portfolio securities. The Adviser obtains and evaluates
such information and advice relating to the economy, securities markets, and
specific securities as it considers necessary or useful to continuously
manage the assets of the Fund in a manner consistent with its investment
objective. In addition, the Adviser pays the salaries of all personnel,
including officers of the Fund, who are employees of the Adviser.
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1997, continued
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Manager. The Fund has adopted a Plan of
Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily
and paid monthly at the following annual rates: (i) Class A - 0.25% of the
average daily net assets of Class A; (ii) Class B - 0.75% of the average daily
net assets of Class B; and (iii) Class C - 0.75% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution
of the shares of these Classes, including the payment of commissions for
sales of these Classes and incentive compensation to, and expenses of, the
account executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Manager and Distributor, and others who engage in or support distribution of
the shares or who service shareholder accounts, including overhead and
telephone expenses; printing and distribution of prospectuses and reports
used in connection with the offering of these shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate DWR and
other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $1,051,414 at August 31,
1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 0.75% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended August 31, 1997, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 0.75%, respectively.
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1997, continued
The Distributor has informed the Fund that for the period ended August 31,
1997, it received contingent deferred sales charges from certain redemptions
of the Fund's Class B shares of $21,041. The respective shareholders pay such
charges which are not an expense of the Fund.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 26, 1996*
THROUGH
AUGUST 31, 1997
--------------------------
SHARES AMOUNT
----------- -------------
<S> <C> <C>
CLASS A SHARES**
Sold....................... 988 $ 10,012
Reinvestment of dividends.. 5 54
----------- -------------
Net increase - Class A..... 993 10,066
----------- -------------
CLASS B SHARES
Sold....................... 1,093,344 10,928,115
Reinvestment of dividends.. 19,067 189,896
Redeemed................... (137,702) (1,365,659)
----------- -------------
Net increase - Class B..... 974,709 9,752,352
----------- -------------
CLASS C SHARES**
Sold....................... 987 10,012
Reinvestment of dividends.. 5 49
----------- -------------
Net increase - Class C..... 992 10,061
----------- -------------
CLASS D SHARES**
Sold....................... 987 10,012
Reinvestment of dividends.. 6 56
----------- -------------
Net increase - Class D..... 993 10,068
----------- -------------
Net increase in Fund....... 977,687 $ 9,782,547
=========== =============
</TABLE>
- ------------
* Commencement of operations.
** For the period July 28, 1997 (issue date) through August 31, 1997.
6. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the period ended August 31,
1997 aggregated $12,710,179 and $3,989,214, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$5,047,470 and $2,225,033, respectively.
Dean Witter Trust FSB, an affiliate of the Manager and Distributor, is the
Fund's transfer agent. For the period ended August 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $1,300.
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 26, 1996*
THROUGH
AUGUST 31,
1997**++
- ------------------------------------------ ------------------
<S> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $10.00
------------------
Net investment income ..................... 0.51
Net realized and unrealized gain........... 0.03
------------------
Total from investment operations .......... 0.54
------------------
Less dividends from net investment income (0.45)
------------------
Net asset value, end of period ............ $10.09
==================
TOTAL INVESTMENT RETURN+................... 5.45%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 0.75%(2)(3)
Net investment income ..................... 6.72%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ... $9,931
Portfolio turnover rate ................... 55%(1)
</TABLE>
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or
waived by the Manager and Adviser, the annualized expense and net
investment income ratios would have been 4.40% and 3.07%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
AUGUST 31,
1997++
- ------------------------------------------ ----------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $10.14
----------------
Net investment income...................... 0.07
Net realized and unrealized loss .......... (0.08)
----------------
Total from investment operations .......... (0.01)
----------------
Less dividends from net investment income (0.05)
----------------
Net asset value, end of period ............ $10.08
================
TOTAL INVESTMENT RETURN+ .................. (0.06)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 0.25%(2)(3)
Net investment income ..................... 7.25%(2)(3)
SUPPLEMENTAL DATA: .......................
Net assets, end of period, in thousands .. $ 10
Portfolio turnover rate.................... 55%(1)
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $10.14
----------------
Net investment income ..................... 0.06
Net realized and unrealized loss .......... (0.07)
----------------
Total from investment operations .......... (0.01)
----------------
Less dividends from net investment income (0.05)
----------------
Net asset value, end of period ............ $10.08
================
TOTAL INVESTMENT RETURN+................... (0.10)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 0.75%(2)(4)
Net investment income ..................... 6.75%(2)(4)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 10
Portfolio turnover rate ................... 55%(1)
</TABLE>
- ------------
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or
waived by the Manager and Adviser, the annualized expense and net
investment income ratios would have been 3.37% and 4.13%, respectively.
(4) If the Fund had borne all of its expenses that were reimbursed or
waived by the Manager and Adviser, the annualized expenses and net
investment income ratios would have been 3.86% and 3.64%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
AUGUST 31,
1997++
- ------------------------------------------ ----------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $10.14
----------------
Net investment income ..................... 0.07
Net realized and unrealized loss .......... (0.07)
----------------
Total from investment operations .......... --
----------------
Less dividends from net investment income (0.06)
----------------
Net asset value, end of period ............ $10.08
================
TOTAL INVESTMENT RETURN+................... (0.03)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... -- (2)(3)
Net investment income ..................... 7.50%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ... $ 10
Portfolio turnover rate.................... 55%(1)
</TABLE>
- ------------
* The date shares were first issued.
+ Calculated based on the net asset value as of the last business day of
the period.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or
waived by the Manager and Adviser, the annualized expense and net
investment income ratios would have been 3.12% and 4.38%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW STRATEGIC INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW STRATEGIC INCOME 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 TCW/DW Strategic
Income Trust (the "Fund") at August 31, 1997, the results of its operations
and the changes in its net assets for the period November 26, 1996
(commencement of operations) through August 31, 1997 and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund'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 audit, which included confirmation of securities at August 31, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 9, 1997
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and General Counsel
Bonnie N. Baha
Vice President
Philip A. Barach
Vice President
Jeffrey E. Gundlach
Vice President
Frederick H. Horton
Vice President
Mark D. Senkpiel
Vice President
Melissa V. Weiler
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
This report is submitted for the general information of shareholders
of the Fund. For more detailed information about the Fund, its officers
and trustees, fees, expenses and other pertinent information, please see
the prospectus of the Fund.
This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective prospectus.
TCW/DW
STRATEGIC
INCOME TRUST
ANNUAL REPORT
AUGUST 31, 1997
