<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- -------------------------------------------------------------------------------
During the fiscal year ended October 31, 1996, the fixed-income market in
the United States was exceptionally volatile. Between November 1995 and January
1996, reports on the U.S. economy indicated weaker overall economic conditions
and culminated in the Federal Reserve Board's decision to cut short-term
interest rates in December 1995 and January of this year. The yield on the
three-month U.S. Treasury bill, a key short-term interest rate benchmark,
declined 33 basis points during the period. However, stronger gross domestic
product, employment, housing and consumer confidence data released later in
1996 showed signs of a robust level of activity. This stronger data resulted in
higher long-term interest rates, as indicated by a 37 basis point yield
increase on the 10-year U.S. Treasury note.
South of the border, the Mexican government continued to take steps during
the latter part of 1995 to stabilize its political and financial situation. As
a result, yields on existing U.S. dollar-linked securities, known as Tesobonos,
remained steady through their final maturities in February. However, signs of
instability returned to Mexico as renewed rebel violence erupted in August. As
a result, the volatility of Mexican financial instruments increased.
In Canada, the political and financial situation also continued to
stabilize during the fiscal year, particularly since publicity regarding the
separatist issue in Quebec has died down in recent months. The Canadian
government continues to take steps toward reducing its national deficit.
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
GROWTH OF $10,000
LEHMAN SHORT U.S.
GOVERNMENT FUNDS
<TABLE>
<CAPTION>
DATE TOTAL INDEX LIPPER
---- ----- ----- ------
<S> <C> <C> <C>
July 31, 1992 $10,000 $10,000 $10,000
October 31, 1992 $10,128 $10,120 $ 9,670
October 31, 1993 $11,075 $10,879 $10,241
October 31, 1994 $10,515 $10,846 $10,194
October 31, 1995 $10,684 $11,958 $10,458
October 31, 1996 $11,366 (2) $12,659 $11,446
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR LIFE OF FUND
------ ------------
6.38 (1) 3.06 (1)
Fund Lehman (3) Lipper (4)
------- ------- -------
Past performance is not predictive of future returns.
- ----------------------------------------
(1) Figure shown assumes reinvestment of all distributions. There
is no sales charge.
(2) Closing value assuming reinvestment of all distributions and
a complete redemption on October 31, 1996.
(3) The Lehman Brothers Short (1-5) U.S. Government Index measures
the performance of all U.S. Government agency and U.S.
Treasury securities with maturities of one to five 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.
(4) The Lipper Short World Multi-Market Income Funds Average tracks the
performance of funds which invest primarily in non-U.S. dollar and
U.S. dollar debt instruments and, by policy, keep a dollar-weighted
average maturity of less than 5 years, as reported by Lipper
Analytical Services.
PERFORMANCE
For the fiscal year ended October 31, 1996, TCW/DW North American
Government Income Trust's net asset value increased from $8.33 to $8.39 per
share. Based on this change, and including reinvestment of income distributions
totaling approximately $0.45 per share, the Fund's total return for the fiscal
year was 6.38 percent. During the same period, the Lehman Brothers Short (1-5)
U.S. Government Index, posted a total return of 5.86 percent, while the Lipper
Short World Multi-Market Income Funds Average registered a total return of 9.44
percent.
The accompanying chart illustrates the performance of a $10,000 investment
in the Fund from inception (July 31, 1992) through the fiscal year ended
October 31, 1996, versus the performance of a similar hypothetical investment
in the issues that comprise the Lehman Brothers Short (1-5) U.S. Government
Index, as well as the performance of the Lipper Short World Multi-Market Income
Funds Average. The Average tracks the performance of funds which invest
primarily in non-U.S. dollar and U.S. dollar debt instruments and, by policy,
keep a dollar-weighted average maturity of less than five years, as reported by
Lipper Analytical Services, Inc.
<PAGE>
INVESTMENT SECTORS
United States
As of October 31, 1996, 100 percent of the Fund's assets were invested in
the United States. The Fund's investment adviser, TCW Funds Management, Inc.,
continues to emphasize high-credit-quality mortgage-backed securities,
including various types of AAA-rated collateralized mortgage obligations
(CMOs), pass-through securities and adjustable-rate mortgages (ARMs) that
generally have yields in excess of U.S. Treasury securities.
The rise in interest rates seen toward the end of the Fund's fiscal year
reduced prepayment risk which helped the mortgage-backed sector's performance.
Issuance of new CMOs is currently at a fraction of the volume generated in
previous years. The Fund's portfolio managers seek to benefit from this slow
down in prepayment activity by investing a portion of the Fund's assets in
adjustable-rate mortgages, which generally perform well as prepayment
expectations subside.
Mexico
To limit the exposure to volatility in the Mexican market, the Fund
invested solely in U.S. dollar-linked Tesobonos during the fiscal year. As
mentioned earlier, during February 1996, all of the Fund's remaining Tesobonos
matured. Currently, the Mexican government has not announced the issuance of
additional short-term U.S. dollar-linked securities. The Fund did not add any
additional investments in Mexican securities following the maturity of its
remaining Tesobonos. However, the Fund's portfolio managers will continue to
monitor the Mexican fixed income market for investment opportunities.
Canada
In general, the portfolio managers purchase Canadian securities when
currency-hedge costs decline and yield spreads widen. Similarly, when hedge
costs increase or yield spreads narrow, Canadian securities are sold. The
adviser continually monitors this sector for attractive investment
opportunities relative to those in the United States and Mexico.
LOOKING AHEAD
Although interest rates have risen over the past several months, the Fund's
investment adviser remains optimistic on the U.S. fixed-income market as whole.
Real rates of interest (taking the effect of inflation into account) are still
historically high. (In the past, periods of strong bond market performance have
correlated with high real rates of interest.) Mexico has made substantial
progress toward economic stabilization but still faces a number of challenges
such as an overall weak banking system and continuing political uncertainties.
At this time, currency and interest rate volatility are likely to continue to
play a major role as Mexico confronts these and other hurdles. The investment
adviser will strictly evaluate these factors when weighing any decisions to
invest in peso-denominated securities. The Fund's net asset value will continue
to fluctuate as prices of the securities held in the portfolio respond to
changes in market conditions and interest rates.
We appreciate your ongoing support of TCW/DW North American Government
Income Trust and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
Charles A. Fiumefreddo
Chairman of the Board
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ---------- ------ -------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES (54.9%)
$ 9,493 Federal Home Loan Mortgage Corp. ARM ..................... 7.781++% 03/01/25 $ 9,742,873
11,344 Federal Home Loan Mortgage Corp. ARM ..................... 7.796++ 08/01/23 11,528,871
22,968 Federal Home Loan Mortgage Corp. PC GOLD ................. 6.00 11/01/00-
12/01/00 22,444,164
10,038 Federal Home Loan Mortgage Corp. PC GOLD ................. 7.00 02/01/98 10,144,926
1,580 Federal National Mortgage Assoc. ......................... 9.50 06/01/20 1,671,517
60,466 Government National Mortgage Assoc. II ARM ............... 7.00 ++ 08/20/22-
06/20/25 61,588,700
62,306 Government National Mortgage Assoc. II ARM ............... 7.125++ 06/20/22-
05/20/25 63,503,158
11,415 Small Business Administration ARM ........................ 6.75 ++ 03/25/16 11,802,583
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $191,786,955) ................................................. 192,426,792
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (37.7%)
U.S. GOVERNMENT AGENCIES (32.6%)
29 Federal Home Loan Mortgage Corp. 1370 K (PAC I/O) ....... 1089.16 09/15/22 921,734
10,372 Federal Home Loan Mortgage Corp. 1504 A (PAC) ........... 7.00 07/15/22 10,345,996
2,258 Federal Home Loan Mortgage Corp. 1508 Q .................. 8.25 + 05/15/23 1,727,602
12,003 Federal Home Loan Mortgage Corp. 1560 A (PAC) ........... 6.50 02/15/23 11,536,891
13,420 Federal Home Loan Mortgage Corp. 1606 LB ................. 7.573+ 05/15/08 11,432,358
12,335 Federal Home Loan Mortgage Corp. G 15 P .................. 6.50 08/25/20 12,230,592
30,920 Federal Home Loan Mortgage Corp. G 21 M .................. 6.50 10/25/23 30,002,709
9,653 Federal National Mortgage Assoc. 1993-163 A .............. 7.00 03/25/23 9,630,942
9,017 Federal National Mortgage Assoc. 1993-165 SE ............. 8.243+ 09/25/23 6,665,672
20,705 Federal National Mortgage Assoc. 1993-167 M (PAC) ....... 6.00 09/25/23 19,877,522
------------
TOTAL U.S GOVERNMENT AGENCIES
(IDENTIFIED COST $121,529,343) ................................................. 114,372,018
------------
PRIVATE ISSUES (5.1%)
1,319 Citicorp Mortgage Securities, Inc. 1991-1 A .............. 8.50 03/25/06 1,279,249
12,232 CountryWide Funding Corp. 1993-7 AS3 (TAC) ............... 9.836+ 11/25/23 9,709,939
3,453 General Electric Capital Mortgage Services, Inc. 1992-11 M 8.00 09/25/22 3,520,905
3,456 Resolution Trust Corp. 1991-6 C1 ......................... 9.00 09/25/28 3,351,387
------------
TOTAL PRIVATE ISSUES
(IDENTIFIED COST $21,220,962) .................................................. 17,861,480
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $142,750,305) ................................................. 132,233,498
------------
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1996 (continued)
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ---------- ------ -------- -----
SHORT-TERM INVESTMENTS (6.9%)
U.S. GOVERNMENT AGENCY (a) (2.7%)
$ 5,000 Federal National Mortgage Assoc .......................... 5.16 % 11/05/96 $ 4,997,133
4,525 Federal National Mortgage Assoc .......................... 5.16 11/15/96 4,515,920
------------
TOTAL U.S. GOVERNMENT AGENCY (Amortized Cost $9,513,053) ........................ 9,513,053
------------
REPURCHASE AGREEMENT (4.2%)
14,487 The Bank of New York (dated 10/31/96; proceeds 5.375 11/01/96
$14,489,514; collateralized by $9,840,479 U.S. Treasury
Bond 11.25% due 02/15/15 valued at $14,777,098)
(Identified Cost $14,487,351) ........................... 14,487,351
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $24,000,404) .................................................. 24,000,404
------------
TOTAL INVESTMENTS (IDENTIFIED COST $358,537,664) (B) ................ 99.5% 348,660,694
OTHER ASSETS IN EXCESS OF LIABILITIES ............................... 0.5 1,868,917
------------
NET ASSETS .......................................................... 100.0% $350,529,611
============
</TABLE>
- --------------
ARM Adjustable rate mortgage.
I/O Interest-only securities.
PAC Planned Amortization Class.
PC Participation Certificate.
TAC Targeted Amortization Class.
+ Inverse floater: interest rate moves inversely to a designated
index, such as LIBOR (London Inter-Bank Offered Rate) or COFI (Cost
of Funds Index), typically at a multiple of the changes of the
relevant index rate.
++ Floating rate security. Rate shown is the rate in effect at
October 31, 1996.
(a) Securities were purchased on a discount basis. The interest rate
shown has been adjusted to reflect a money market equivalent
yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation was
$1,797,745 and the aggregate gross unrealized depreciation was
$11,674,715, resulting in net unrealized depreciation of
$9,876,970.
See Notes to Financial Statements
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- -------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $358,537,664) .... $ 348,660,694
Receivable for:
Interest ........................... 2,026,502
Principal paydowns ................. 1,035,144
Shares of beneficial interest sold 191,243
Deferred organizational expenses ... 30,208
Prepaid expenses and other assets .. 55,555
-------------
TOTAL ASSETS ...................... 351,999,346
-------------
LIABILITIES:
Payable for:
Shares of beneficial interest
repurchased ....................... 751,515
Plan of distribution fee ........... 227,928
Dividends to shareholders .......... 154,619
Management fee ..................... 118,522
Investment advisory fee ............ 79,015
Accrued expenses and other payables 138,136
Contingencies (Note 10) ............. --
-------------
TOTAL LIABILITIES ................. 1,469,735
-------------
NET ASSETS:
Paid-in-capital ..................... 588,531,889
Net unrealized depreciation ......... (9,876,970)
Accumulated undistributed net
investment income .................. 236,650
Accumulated net realized loss ...... (228,361,958)
-------------
NET ASSETS ........................ $ 350,529,611
=============
NET ASSET VALUE PER SHARE, 41,762,133
shares outstanding (unlimited shares
authorized of $.01 par value) ...... $ 8.39
=============
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME:
INTEREST INCOME .................. $ 36,010,522
------------
EXPENSES
Plan of distribution fee ........ 3,601,742
Management fee .................. 1,912,210
Investment advisory fee ......... 1,274,806
Transfer agent fees and expenses 560,557
Professional fees ............... 235,585
Registration fees ............... 205,937
Insurance expense ............... 76,679
Shareholder reports and notices 63,158
Organizational expenses ......... 40,000
Trustees' fees and expenses .... 32,776
Custodian fees .................. 8,965
Other ........................... 10,764
------------
TOTAL EXPENSES ................. 8,023,179
------------
NET INVESTMENT INCOME .......... 27,987,343
------------
NET REALIZED AND
UNREALIZED GAIN (LOSS):
Net realized loss ............... (14,716,492)
Net change in unrealized
depreciation ................... 13,910,483
------------
NET LOSS ....................... (806,009)
------------
NET INCREASE ................... $ 27,181,334
============
See Notes to Financial Statements
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ......................................... $ 27,987,343 $ 67,259,196
Net realized loss ............................................. (14,716,492) (256,423,219)
Net change in unrealized depreciation ......................... 13,910,483 162,024,285
---------------- ----------------
Net increase (decrease) ...................................... 27,181,334 (27,139,738)
---------------- ----------------
Dividends and distributions from:
Net investment income ......................................... (26,893,174) --
Paid-in-capital ............................................... -- (64,021,457)
---------------- ----------------
Total ........................................................ (26,893,174) (64,021,457)
Net decrease from transactions in shares of beneficial interest (308,065,887) (610,142,782)
---------------- ----------------
Net decrease ................................................. (307,777,727) (701,303,977)
NET ASSETS:
Beginning of period ............................................ 658,307,338 1,359,611,315
---------------- ----------------
END OF PERIOD (including undistributed net investment income
of $236,650 and distributions in excess of net investment
income of $391,745, respectively) ............................. $ 350,529,611 $ 658,307,338
================ ================
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996
- -------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- TCW/DW North American Government
Income Trust (the "Fund") is registered under the Investment Company Act of
1940, as amended (the "Act"), as a non-diversified, open-end management
investment company. The Fund's investment objective is to earn a high level of
income while maintaining relatively low volatility of principal. The Fund was
organized as a Massachusetts business trust on February 19, 1992 and commenced
operations on July 31, 1992.
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) 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; (2) when market
quotations are not readily available, including circumstances under which it
is determined by 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 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); and (3) 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. The Fund amortizes premiums and accretes discounts based on the
respective life of the securities. Interest income is accrued daily.
C. Foreign Currency Translation -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value
of investment securities, other assets and liabilities and forward contracts
are translated at the exchange rates prevailing at the end of the period;
and (2) purchases, sales, income and expenses are translated at the exchange
rates prevailing on the respective dates of such transactions. The resultant
exchange gains and losses are included in the Statement of Operations as
realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange
gains/losses included in realized and unrealized gain/loss are included in
or are a reduction of ordinary income for federal income tax purposes. The
Fund does not isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the changes in the
market prices of the securities.
D. Forward Foreign Currency Contracts -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate
exchange rates. The resultant unrealized exchange gains and losses are
included in the Statement of Operations as unrealized foreign currency gain
or loss. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated)
by entering into a closing transaction prior to delivery.
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996 (continued)
- -------------------------------------------------------------------------------
E. Dollar Rolls -- The Fund may enter into dollar rolls in which the Fund
sells securities for delivery and simultaneously contracts to repurchase
substantially similar securities at the current sales price on a specified
future date. The difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") is
amortized over the life of the dollar roll.
F. 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.
G. 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 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.
H. Organizational Expenses -- Dean Witter InterCapital Inc., an affiliate of
Dean Witter Services Company Inc. (the "Manager"), paid the organizational
expenses which have been reimbursed by the Fund in the amount of $200,000.
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 following annual rates to the net assets of the Fund determined as of the
close of each business day: 0.39% to the portion of average daily net assets
not exceeding $3 billion and 0.36% to the portion of average daily net assets
exceeding $3 billion.
Under the terms of the 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.
3. INVESTMENT ADVISORY AGREEMENT -- Pursuant to an Investment Advisory
Agreement with TCW Funds Management, Inc. (the "Adviser"), the Fund pays an
advisory fee, calculated daily and payable monthly, by applying the following
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.26% to the portion of average daily net assets not exceeding $3
billion and 0.24% to the portion of average daily net assets exceeding $3
billion.
Under the terms of the 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
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996 (continued)
- -------------------------------------------------------------------------------
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.
4. PLAN OF DISTRIBUTION -- Dean Witter Distributors Inc. (the "Distributor"),
an affiliate of the Manager, is the distributor of the Fund's shares and, in
accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act, finances certain expenses in connection with the distribution of
shares of the Fund.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor under the Plan: (1)
compensation to, and expenses of, account executives of Dean Witter Reynolds
Inc., an affiliate of the Manager and Distributor, and other employees or
selected broker-dealers; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales
of the Fund's shares; (3) expenses incurred in connection with promoting sales
of the Fund's shares; (4) preparing and distributing sales literature; and (5)
providing advertising and promotional activities, including direct mail
solicitation and television, radio, newspaper, magazine and other media
advertisements.
The Fund is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. The amount of each monthly reimbursement payment may in no event
exceed an amount equal to a payment at the annual rate of 0.75% of the Fund's
average daily net assets during the month. Expenses incurred pursuant to the
Plan in any fiscal year in excess of 0.75% of the Fund's average daily net
assets will not be reimbursed by the Fund through payments accrued in any
subsequent fiscal year. For the year ended October 31, 1996, the distribution
fee was accrued at the annual rate of 0.73%.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales/prepayments of portfolio securities,
excluding short-term investments, for the year ended October 31, 1996 were as
follws:
SALES/
PURCHASES PREPAYMENTS
--------- -----------
U.S. Government Agencies . $65,366,471 $236,358,150
Private Issue CMOs ....... -- 2,123,899
Dean Witter Trust Company, an affiliate of the Manager and Distributor, is
the Fund's transfer agent. At October 31, 1996, the Fund had transfer agent
fees and expenses payable of approximately $54,000.
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996 (continued)
- -------------------------------------------------------------------------------
6. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold ......................... 4,379,571 $ 36,607,829 11,625,629 $ 96,045,510
Reinvestment of dividends and
distributions ............... 2,403,699 19,895,478 5,930,740 48,356,244
-------------- -------------- -------------- ---------------
6,783,270 56,503,307 17,556,369 144,401,754
Repurchased .................. (44,094,721) (364,569,194) (91,392,898) (754,544,536)
-------------- -------------- -------------- ---------------
Net decrease ................. (37,311,451) $(308,065,887) (73,836,529) $(610,142,782)
============== ============== ============== ===============
</TABLE>
7. FEDERAL INCOME TAX STATUS -- At October 31, 1996, the Fund had a net capital
loss carryover of approximately $228,362,000 of which $53,086,000 will be
available through October 31, 2002, $160,560,000 will be available through
October 31, 2003 and $14,716,000 will be available through October 31, 2004 to
offset future capital gains to the extent provided by regulations.
To reflect reclassifications arising from permanent book/tax differences for
the year ended October 31, 1996, accumulated undistributed net investment
income was charged $465,774 and paid-in-capital was credited $465,774.
8. REVERSE REPURCHASE AND DOLLAR ROLL AGREEMENTS -- Reverse repurchase and
dollar roll agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase or dollar roll agreement files for bankruptcy or becomes insolvent,
the Fund's use of proceeds of the agreement may be restricted pending a
determination by the other party, its trustee or receiver, whether to enforce
the Fund's obligation to repurchase the securities.
Reverse repurchase agreements are collateralized by Fund securities with a
market value in excess of the Fund's obligation under the contract.
9. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS -- The Fund
may enter into forward foreign currency contracts ("forward contracts") to
facilitate settlement of foreign currency denominated portfolio transactions or
to manage foreign currency exposure associated with foreign currency
denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
10. LITIGATION -- Several purported class action lawsuits, which have been
consolidated for pretrial purposes, were instituted in 1995 in the United
States District Court, in New York, against the Fund, some of its Trustees and
officers, its underwriter and distributor, the Adviser, the Manager, and other
defendants, by certain shareholders of the Fund. The consolidated amended
complaint asserts claims under the Securities
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1996 (continued)
- -------------------------------------------------------------------------------
Act of 1933 and generally alleges that the defendants made inadequate and
misleading disclosures in the prospectuses for the Fund, in particular as such
disclosures relate to the nature and risks of the Fund's investments in
mortgage-backed securities and Mexican securities. The plaintiffs also
challenge certain fees paid by the Fund as excessive. Damages are sought in an
unspecified amount. All defendants moved to dismiss the consolidated amended
complaint, and on May 8, 1996 the motions to dismiss were denied. The
defendants moved for reargument and on August 28, 1996 the Court issued a
second opinion which granted the motion to dismiss in part. The Court has also
certified a plaintiff class pursuant to the Federal Rules of Civil Procedure.
On December 4, 1996, the defendants filed a renewed motion to dismiss.
The ultimate outcome of these matters is not presently determinable, and no
provision has been made in the Fund's financial statements for the effect, if
any, of such matters.
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT 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
FOR THE YEAR ENDED OCTOBER 31, JULY 31, 1992*
--------------------------------------- THROUGH
1996 1995 1994 1993 OCTOBER 31, 1992
-------- -------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 8.33 $ 8.89 $10.11 $ 9.96 $10.00
-------- -------- --------- -------- ----------------
Net investment income .................. 0.47 0.69 0.68 0.77 0.18
Net realized and unrealized gain (loss) 0.04 (0.59) (1.18) 0.14 (0.05)
-------- -------- --------- -------- ----------------
Total from investment operations ...... 0.51 0.10 (0.50) 0.91 0.13
-------- -------- --------- -------- ----------------
Less dividends and distributions from:
Net investment income ................. (0.45) -- (0.47) (0.76) (0.17)
Net capital gain ...................... -- -- (0.02) -- --
Paid-in-capital ....................... -- (0.66) (0.23) -- --
-------- -------- --------- -------- ----------------
Total dividends and distributions ..... (0.45) (0.66) (0.72) (0.76) (0.17)
-------- -------- --------- -------- ----------------
Net asset value, end of period ......... $ 8.39 $ 8.33 $ 8.89 $10.11 $ 9.96
======== ======== ========= ======== ================
TOTAL INVESTMENT RETURN+ .............. 6.38% 1.61% (5.06)% 9.35% 1.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 1.64% 1.59% 1.52% 1.54% 1.80%(2)
Net investment income .................. 5.71% 8.28% 6.85% 7.78% 8.36%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $351 $658 $1,360 $2,986 $762
Portfolio turnover rate ................ 13% 44% 27% 77% 2%(1)
</TABLE>
- --------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Shareholders and Trustees of TCW/DW North American Government 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 North American Government
Income Trust (the "Fund") at October 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
four years in the period then ended and for the period July 31, 1992
(commencement of operations) through October 31, 1992, 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 audits, which included confirmation of securities at October 31, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Our report on the October 31, 1995 financial statements referred to certain
pending litigation, the status of which is described in Note 10 to these
financial statements. Because of changes to professional auditing standards
recently adopted by the American Institute of Certified Public Accountants, our
report on the October 31, 1996 financial statements is no longer required to
refer to uncertainties such as this litigation.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 17, 1996
<PAGE>
(This page has been left blank intentionally.)
<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
Sheldon Curtis
Vice President, Secretary and
General Counsel
Philip A. Barach
Vice President
James M. Goldberg
Vice President
Jeffrey E. Gundlach
Vice President
Ferderick H. Horton
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Haborside 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 accompained by an effective prospectus.
TCW/DW
NORTH AMERICAN
GOVERNMENT
INCOME TRUST
ANNUAL REPORT
OCTOBER 31, 1996
