TCW/DW SMALL CAP GROWTH FUND
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- -----------------------------------------------------------------------------
Following the extraordinary performance of fiscal-year 1995, TCW/DW Small
Cap Growth Fund registered a total return of nearly 10 percent for the first
half of its 1996 fiscal year (February 29 through August 31, 1996). On August
31, the Fund had net assets in excess of $270 million. The Fund owns shares of
companies that, in the opinion of the portfolio managers, exhibit the potential
to show earnings growth in excess of 30 percent on average, well above the 8 to
10 percent growth expected for the overall market.
THE MARKETPLACE
The Fund's investment adviser, TCW Funds Management, Inc., has been
particularly optimistic for the last 18 months, in large part because of the
belief that low inflation and falling interest rates would be positive for the
stock market. However, interest rates are driven more by inflation
expectations, and it does not appear that economic growth will slow enough in
the second half of 1996 to dampen those expectations. The good news is that the
stronger economy will produce higher-than-expected corporate profit growth,
which is expected to have a stabilizing impact on the stock market. In
addition, since Federal Reserve Board tightening would eventually slow the
economy and reduce inflation expectations, long-term interest rates are
expected to decline over the next 6 to 12 months.
Many forecasters believe that the stock market's upside is limited by rising
inflation and higher interest rates. If long term rates were to rise toward the
8 percent level, price/earnings ratios would be negatively impacted and
stock-market performance would suffer. However, it is the adviser's belief that
the Fund's shareholders are better served by a portfolio management team that
invests in rapidly growing companies at reasonable prices, as opposed to one
that attempts to time the market. The Fund's focus on companies with rapidly
growing earnings as a result of their competitive advantage, or a market niche
that is insulated from the overall economy, should provide some downside
cushion during periods of rising interest rates and compressed price/earnings
ratios.
Another important factor affecting stock valuations is the paradigm shift
caused by demographic change. The baby boom generation that produced an
explosion of consumer spending in the 1970's and 1980's, now faces the need to
save for retirement. As savings and investment expand, we may witness the same
impact on the prices of financial assets that baby boomers had on the prices of
everything from automobiles and houses to hamburgers and tennis shoes. This
demographic shift also makes it difficult to support the theory that the market
is fully valued. According to the adviser, what will probably result is a
dichotomy between the valuation of average companies having unimaginative
managements and "me-too" product lines, and the valuation investors place on
well-managed companies with exciting product stories and prospects for rapid
growth. The adviser believes that the Fund is well positioned in the latter
group of companies and hopes to take advantage of these exciting opportunities
in the year ahead.
PERFORMANCE
The Fund experienced strong performance in the first six months of its
fiscal year rising 9.98 percent, more than double the total returns produced by
both the Russell 2000 Small Stock Index (3.46 percent) and the NASDAQ (3.77
percent). The Fund also outperformed the Lipper Analytical Services, Inc. Small
Company Growth Fund Index, which registered a total return of 5.53 percent.
Since its inception on August 2, 1993, the Fund has provided an average annual
total return of 20.72 percent, versus 12.34 percent for the Russell 2000, 15.40
percent for the NASDAQ and 15.03 percent for the Lipper Small Company Growth
Fund Index.
<PAGE>
The best-performing industry groups for the Fund during the period under
review were business services, leisure, financial services and retail.
THE PORTFOLIO
Although the portfolio managers made a number of changes in the Fund's
holdings over the last six months, there was no meaningful change in the
weightings of the broad industry sectors. Weightings in such sectors as
telecommunications, business services, leisure and financial services were
increased, while exposure to healthcare, semiconductors, computer software and
transportation was reduced.
As mentioned earlier, the Fund remains invested in rapidly growing companies
for which earnings power and growth rates are believed to be underestimated by
Wall Street consensus. In order to minimize the impact of a slowing economy on
the Fund's performance, the portfolio managers are emphasizing companies that
focus on a specific market niche that is insulated from macroeconomic trends.
The portfolio also holds a number of companies that are benefiting from strong
new-product cycles that may lead to accelerating earnings.
Some of the market niches that the Fund currently emphasizes include
healthcare companies positioned to meet the intense pressure to lower costs;
technology companies exploiting the trend toward client/server computing;
service companies benefiting from the move to outsourcing; and
telecommunications companies addressing the demand for increased bandwidth and
other infrastructure enhancements that are necessary to move huge amounts of
voice, video and data over fiber optic and copper wire cable. New-product
cycles that drive the growth of many small companies include the explosion of
opportunities that are tied to the development of the Internet, the creation of
new drugs and medical devices, and new retail concepts that capture the
attention of consumers with rising discretionary income.
OPPORTUNITIES IN SMALL-CAP STOCKS
The adviser believes that small-cap stocks will outperform larger-cap stocks
in the future. With the underperformance of small stocks over the last few
years, they are now selling at lower price/earnings ratios than large cap
stocks. More importantly, many small-cap companies are expected to have higher
earnings growth over the next five years. The portfolio managers' methodology
enables them to construct a portfolio of small companies that can benefit from
a competitive advantage or focus on a market niche that insulates them from the
overall economy.
LOOKING AHEAD
Looking out 12 months and beyond, the adviser still believes that long-term
interest rates will head back toward the 6.5 percent area and that inflation
will remain low enough to justify this outlook. The adviser is also confident
that small-cap growth stocks are poised to provide above-average long term
returns. This outlook is enhanced by the fact that current valuations are
unusually attractive in relation to expected rates of earnings growth.
We appreciate your support of TCW/DW Small Cap Growth Fund 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 SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS August 31, 1996 (unaudited)
- -----------------------------------------------------------------------------
Number of
Shares Value
- ----------- --------------
COMMON STOCKS (92.6%)
ADVERTISING (1.5%)
3,800 Lamar Advertising Co.* ............... $ 106,400
94,950 Outdoor Systems, Inc. ................ 4,011,637
--------------
4,118,037
--------------
AUTO PARTS - ORIGINAL
EQUIPMENT (0.2%)
35,100 Dura Automotive Systems, Inc.* ...... 631,800
--------------
BEVERAGES (0.4%)
62,300 Odwalla, Inc.* ....................... 1,020,162
--------------
BIOTECHNOLOGY (0.8%)
5,100 Aksys Ltd.* .......................... 57,375
142,100 Neoprobe Corp.* ...................... 2,095,975
--------------
2,153,350
--------------
BROADCAST MEDIA (2.5%)
40,400 Clear Channel Communications, Inc.* . 3,327,950
27,600 Lin Television Corp.* ................ 986,700
13,700 Premiere Radio Networks, Inc.* ...... 150,700
19,800 Premiere Radio Networks, Inc.
(Class A)* .......................... 215,325
80,500 Westwood One, Inc.* .................. 1,378,562
16,900 Young Broadcasting, Inc. (Class A)* . 583,050
--------------
6,642,287
--------------
COMMERCIAL SERVICES (6.7%)
100,900 AccuStaff, Inc.* ..................... 2,320,700
44,700 Alternative Resources Corp.* ......... 1,609,200
25,900 America Online, Inc.* ................ 783,475
66,000 Cambridge Technology Partners,
Inc.* ............................... 1,872,750
59,800 Career Horizons, Inc.* ............... 2,085,525
54,000 Corrections Corp. of America* ....... 1,741,500
56,500 ICT Group, Inc.* ..................... 875,750
27,400 Pharmaceutical Product
Development, Inc.* .................. 760,350
70,100 Robert Half International, Inc.* .... 2,313,300
100,400 Romac International, Inc.* ........... 3,062,200
21,300 Sylvan Learning Systems, Inc.* ...... 766,800
1,500 The Vincam Group, Inc.* .............. 43,875
--------------
18,235,425
--------------
COMMUNICATIONS -
EQUIPMENT & SOFTWARE (4.7%)
81,600 Ascend Communications, Inc.* ......... 4,273,800
88,200 Cascade Communications Corp.* ....... 5,997,600
60,400 Premisys Communications, Inc.* ...... 2,340,500
--------------
12,611,900
--------------
COMPUTER SERVICES (0.4%)
47,800 META Group, Inc. ..................... $ 1,135,250
--------------
COMPUTER SOFTWARE (6.3%)
67,100 Business Objects S.A. (ADR)*
(France) ............................ 1,140,700
53,200 CBT Group PLC (ADR)* (Ireland) ...... 2,367,400
56,100 Datastream Systems, Inc.* ............ 1,654,950
117,700 Epic Design Technology, Inc.* ....... 2,206,875
52,300 Medic Computer Systems, Inc.* ....... 1,823,962
12,800 Peoplesoft, Inc.* .................... 982,400
56,223 Pure Atria Corp.* .................... 1,707,774
35,850 Remedy Corp.* ........................ 1,613,250
58,200 Security Dynamics Technologies, Inc.* 3,797,550
--------------
17,294,861
--------------
COMPUTER SOFTWARE &
SERVICES (11.5%)
14,100 ABR Information Services, Inc.* ..... 793,125
35,200 Aspect Development, Inc.* ............ 906,400
29,410 Astea International, Inc.* ........... 227,927
7,300 Check Point Software Technologies
Ltd.* (Israel) ...................... 177,937
61,700 Citrix Systems, Inc.* ................ 2,591,400
4,900 Clarify, Inc.* ....................... 204,575
63,300 Computer Management Sciences, Inc.* . 1,234,350
52,300 CSG Systems International, Inc.* .... 1,124,450
27,100 DecisionOne Corp.* ................... 440,375
20,200 First USA Paymentech, Inc.* .......... 762,550
32,800 HNC Software, Inc.* .................. 975,800
103,000 HPR, Inc.* ........................... 1,751,000
1,500 I2 Technologies, Inc.* ............... 42,000
32,600 INSO Corp.* .......................... 1,650,375
66,400 Legato Systems, Inc.* ................ 2,573,000
82,400 Logic Works, Inc.* ................... 772,500
23,000 MetaTools, Inc.* ..................... 408,250
239,200 National TechTeam, Inc.* ............. 4,275,700
12,400 NOVA Corp.* .......................... 359,600
42,000 Planning Sciences International PLC
(ADR)* (United Kingdom) ............. 577,500
104,200 Saville Systems Ireland PLC (ADR)*
(Ireland) ........................... 2,956,675
53,700 Segue Software, Inc.* ................ 684,675
1,500 Siebel Systems, Inc.* ................ 61,500
131,800 Summit Medical Systems, Inc.* ....... 2,207,650
10,400 Sykes Enterprises, Inc.* ............. 465,400
24,700 Transition Systems, Inc.* ............ 555,750
4,400 Verilink Corp.* ...................... 110,000
30,300 Viasoft, Inc.* ....................... 1,795,275
32,100 Workgroup Technology Corp.* .......... 529,650
--------------
31,215,389
--------------
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS August 31, 1996 (unaudited) (continued)
Number of
Shares Value
- ----------- --------------
COMPUTERS (1.0%)
134,100 Lumisys, Inc.* ....................... $ 1,458,337
47,200 Network Appliance, Inc.* ............. 1,309,800
--------------
2,768,137
--------------
ELECTRICAL EQUIPMENT (2.0%)
44,100 ANADIGICS, Inc.* ..................... 1,411,200
35,450 Baldor Electric Co. .................. 735,587
67,400 Cidco, Inc.* ......................... 1,533,350
76,500 C.P. Clare Corp.* .................... 1,147,500
25,500 Sheldahl, Inc.* ...................... 478,125
--------------
5,305,762
--------------
ELECTRONICS (1.4%)
96,600 Gemstar International Group Ltd.* ... 2,704,800
48,100 Lernout & Hauspie Speech Products NV*
(Belgium) ........................... 1,070,225
6,900 SRS Labs, Inc.* ...................... 81,937
--------------
3,856,962
--------------
ELECTRONICS - SEMICONDUCTORS/
COMPONENTS (0.9%)
77,400 Maxim Integrated Products, Inc.* .... 2,370,375
--------------
ENTERTAINMENT (1.2%)
39,600 Penske Motorsports, Inc.* ............ 1,069,200
60,000 Regal Cinemas, Inc.* ................. 2,190,000
1,600 Silicon Gaming, Inc.* ................ 15,600
--------------
3,274,800
--------------
ENTERTAINMENT/GAMING (1.4%)
126,400 Family Golf Centers, Inc.* ........... 3,697,200
--------------
ENVIRONMENTAL CONTROL (0.8%)
53,600 Culligan Water Technologies, Inc.* .. 2,056,900
--------------
FINANCIAL SERVICES (1.5%)
69,500 Envoy Corp.* ......................... 2,276,125
58,700 Imperial Credit Industries, Inc.* ... 1,753,663
--------------
4,029,788
--------------
HEALTH EQUIPMENT & SERVICES (0.3%)
1,200 IDX Systems Corp.* ................... 33,900
28,000 Thermolase Corp.* .................... 644,000
--------------
677,900
--------------
HEALTHCARE (0.5%)
30,100 Oxford Health Plans, Inc.* ........... 1,369,550
--------------
HEALTHCARE PRODUCTS & SERVICES (4.3%)
70,350 Access Health, Inc.* ................. $ 3,570,263
31,800 AmeriSource Health Corp. (Class A)* . 1,212,375
90,900 Orthodontic Centers of America, Inc.* 3,386,025
36,900 Pediatrix Medical Group, Inc.* ...... 1,660,500
20,100 Urocor, Inc.* ........................ 276,375
74,300 Veterinary Centers of America, Inc.* 1,541,725
--------------
11,647,263
--------------
HOSPITAL MANAGEMENT & HEALTH
MAINTENANCE ORGANIZATIONS (3.3%)
42,200 Express Scripts, Inc. (Class A)* .... 1,339,850
110,100 Medcath, Inc.* ....................... 1,940,513
65,000 MedPartners/Mullikin, Inc.* .......... 1,348,750
76,425 PhyCor, Inc.* ........................ 2,483,813
43,000 Total Renal Care Holdings, Inc.* .... 1,768,375
--------------
8,881,301
--------------
HOTELS (0.1%)
9,300 Interstate Hotels Co.* ............... 219,713
--------------
HOUSEHOLD FURNISHINGS & APPLIANCES
(0.2%)
31,200 Heilig-Meyers Co. .................... 553,800
--------------
HOUSEHOLD PRODUCTS (2.3%)
50,000 Blyth Industries, Inc.* .............. 2,300,000
80,200 Diamond Home Services, Inc.* ......... 2,466,150
48,500 USA Detergents, Inc.* ................ 1,479,250
--------------
6,245,400
--------------
INSURANCE (1.5%)
55,000 Amerin Corp.* ........................ 1,237,500
46,200 Capmac Holdings, Inc. ................ 1,351,350
43,200 Gallagher (Arthur J.) & Co. .......... 1,468,800
--------------
4,057,650
--------------
LIFE INSURANCE (1.4%)
65,200 CRA Managed Care, Inc.* .............. 2,868,800
40,100 First Commonwealth, Inc.* ............ 952,375
--------------
3,821,175
--------------
MANUFACTURING (0.7%)
62,600 Memtec Ltd. (ADR) (Australia) ....... 1,924,950
--------------
MEDICAL EQUIPMENT (0.4%)
33,300 Thermo Cardiosystems, Inc.* .......... 1,136,363
--------------
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS August 31, 1996 (unaudited) (continued)
Number of
Shares Value
- ----------- --------------
MEDICAL PRODUCTS &
SUPPLIES (3.3%)
162,100 IRIDEX Corp.* ........................ $ 1,539,950
25,000 Lincare Holdings, Inc.* .............. 925,000
60,000 Omnicare, Inc. ....................... 1,470,000
101,600 Safeskin Corp.* ...................... 3,251,200
53,200 Sola International, Inc.* ............ 1,862,000
--------------
9,048,150
--------------
MEDICAL SERVICES (0.8%)
75,300 Gulf South Medical Supply, Inc.* .... 1,628,363
39,200 Housecall Medical Resources, Inc.* .. 279,300
6,600 Sunrise Assisted Living, Inc.* ...... 169,950
--------------
2,077,613
--------------
OFFICE EQUIPMENT & SUPPLIES (0.5%)
47,600 Viking Office Products, Inc.* ....... 1,225,700
--------------
OIL EQUIPMENT & SERVICES (0.7%)
55,700 Newpark Resources, Inc.* ............. 2,012,162
--------------
PHARMACEUTICALS (2.1%)
62,000 Dura-Pharmaceuticals, Inc.* .......... 2,139,000
48,400 Fuisz Technologies, Ltd.* ............ 834,900
81,500 Matrix Pharmaceutical, Inc.* ......... 998,375
44,200 Vivus, Inc.* ......................... 1,547,000
--------------
5,519,275
--------------
PUBLISHING (1.7%)
120,000 Gartner Group, Inc. (Class A)* ...... 3,720,000
39,700 Scientific Games Holding Corp.* ..... 992,500
--------------
4,712,500
--------------
REAL ESTATE INVESTMENT TRUST (0.7%)
75,800 Redwood Trust, Inc. .................. 2,027,650
--------------
RESTAURANTS (2.3%)
30,700 Apple South, Inc. .................... 637,025
86,800 Boston Chicken Inc.* ................. 3,005,450
27,300 Einstein/Noah Bagel Corp.* ........... 832,650
37,500 Papa John's International, Inc.* .... 1,696,875
--------------
6,172,000
--------------
RETAIL (1.4%)
52,200 Cost Plus, Inc.* ..................... 1,396,350
67,400 Stein Mart, Inc.* .................... 1,381,700
32,800 Tiffany & Co. ........................ 1,143,900
--------------
3,921,950
--------------
RETAIL - DEPARTMENT STORES (0.9%)
43,100 Dollar Tree Stores, Inc.* ............ 1,357,650
27,300 Proffitt's Inc.* ..................... 1,105,650
--------------
2,463,300
--------------
RETAIL - SPECIALTY (6.3%)
75,200 Bed Bath & Beyond, Inc.* ............. $ 1,701,400
131,000 Corporate Express, Inc.* ............. 4,912,500
43,000 Marks Bros. Jewelers, Inc.* .......... 1,021,250
93,300 Mossimo, Inc.* ....................... 4,233,488
71,300 Oakley, Inc.* ........................ 2,923,300
78,400 PetSmart, Inc.* ...................... 2,136,400
--------------
16,928,338
--------------
RETAIL - SPECIALTY APPAREL (3.1%)
28,900 Designer Holdings Ltd.* .............. 639,413
7,000 Donna Karan International, Inc.* .... 171,500
84,050 Just For Feet, Inc.* ................. 3,729,719
27,400 K & G Men's Center, Inc.* ............ 619,925
119,400 Kenneth Cole Productions, Inc.
(Class A)* .......................... 2,328,300
90,200 Marisa Christina, Inc.* .............. 856,900
--------------
8,345,757
--------------
SEMICONDUCTORS (0.9%)
37,400 Aspen Technology, Inc.* .............. 2,552,550
--------------
TELECOMMUNICATION EQUIPMENT (2.1%)
5,400 Boston Communications Group, Inc.* .. 89,100
90,000 Inter-Tel, Inc.* ..................... 1,845,000
41,900 Natural Microsystems Corp.* .......... 1,717,900
40,000 Teltrend, Inc.* ...................... 1,870,000
--------------
5,522,000
--------------
TELECOMMUNICATIONS (3.2%)
93,400 LCI International, Inc.* ............. 3,304,025
49,800 McLeod, Inc. (Class A)* .............. 1,437,975
50,000 Omipoint Corp.* ...................... 1,362,500
132,200 Winstar Communications, Inc.* ....... 2,528,325
--------------
8,632,825
--------------
TRANSPORTATION (0.9%)
72,600 Miller Industries, Inc.* ............. 2,432,100
--------------
TRANSPORTATION - MISCELLANEOUS (0.6%)
32,900 Pittston Brink's Group ............... 929,425
45,400 United TransNet, Inc.* ............... 590,200
--------------
1,519,625
--------------
TRANSPORTATION - SHIPPING (0.6%)
38,600 Atlas Air, Inc.* ..................... 1,727,350
--------------
WHOLESALE DISTRIBUTOR (0.3%)
36,200 NuCo2 Inc.* .......................... 941,200
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $186,713,952) ..... 250,735,495
--------------
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS August 31, 1996 (unaudited) (continued)
Principal
Amount (In
Thousands) Value
- ----------- --------------
SHORT-TERM INVESTMENTS (7.7%)
COMMERCIAL PAPER (a) (4.3%)
AUTOMOTIVE - FINANCE (0.7%)
$1,880 Toyota Motor Credit Corp. 5.25%
due 09/20/96 ..................... $ 1,874,791
--------------
BANKS - THRIFT INSTITUTIONS (1.8%)
5,000 Student Loan Corp. 5.27% due
09/03/96 ......................... 4,998,536
--------------
ENTERTAINMENT (1.8%)
5,000 Walt Disney Co. 5.17% due 09/03/96 4,998,564
--------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $11,871,891) .... 11,871,891
--------------
REPURCHASE AGREEMENT (3.4%)
9,068 The Bank of New York 5.125% due
09/03/96 (dated 08/30/96;
proceeds $9,073,519;
collateralized by $9,477,248
Federal Mortgage Acceptance Corp.
11.00% due 07/25/18 valued at
$9,249,722) (Identified Cost
$9,068,355) ...................... 9,068,355
--------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $20,940,246) ... 20,940,246
--------------
Value
--------------
TOTAL INVESTMENTS
(IDENTIFIED COST $207,654,198) (b) . 100.3% $271,675,741
LIABILITIES IN EXCESS
OF OTHER ASSETS ................... (0.3) (998,338)
-------- --------------
NET ASSETS ........................ 100.0% $270,677,403
======== ==============
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Securities were purchased on a discount basis. The interest rates shown
have 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 $76,869,786 and the
aggregate gross unrealized depreciation was $12,848,243, resulting in net
unrealized appreciation of $64,021,543.
See Notes to Financial Statements
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996 (unaudited)
- -----------------------------------------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $207,654,198) ........... $271,675,741
Receivable for:
Shares of beneficial interest sold ...... 1,244,331
Investments sold ......................... 914,250
Interest ................................. 2,582
Dividends ................................ 1,723
Deferred organizational expenses .......... 69,592
Prepaid expenses .......................... 89,130
--------------
TOTAL ASSETS ........................... 273,997,349
--------------
LIABILITIES:
Payable for:
Investments purchased .................... 2,659,260
Plan of distribution fee ................. 202,699
Shares of beneficial interest repurchased 167,782
Management fee ........................... 132,381
Investment advisory fee .................. 88,254
Accrued expenses .......................... 69,570
--------------
TOTAL LIABILITIES ...................... 3,319,946
--------------
NET ASSETS:
Paid-in-capital ........................... 211,346,313
Net unrealized appreciation ............... 64,021,543
Net investment loss ....................... (1,835,096)
Accumulated net realized loss ............. (2,855,357)
--------------
NET ASSETS ............................. $270,677,403
==============
NET ASSET VALUE PER SHARE, 15,159,640
shares outstanding (unlimited shares
authorized of $.01 par value) ............ $ 17.86
==============
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the six months ended August 31, 1996 (unaudited)
- -----------------------------------------------------------------------------
NET INVESTMENT INCOME:
INCOME
Interest ................................. $ 483,187
Dividends ................................ 65,360
--------------
TOTAL INCOME ........................... 548,547
--------------
EXPENSES
Plan of distribution fee ................. 942,545
Management fee ........................... 687,469
Investment advisory fee .................. 458,313
Transfer agent fees and expenses ........ 133,745
Registration fees ........................ 51,203
Professional fees ........................ 31,984
Shareholder reports and notices .......... 22,144
Trustees' fees and expenses .............. 19,679
Organizational expenses .................. 18,293
Custodian fees ........................... 15,002
Other .................................... 3,266
--------------
TOTAL EXPENSES ......................... 2,383,643
--------------
NET INVESTMENT LOSS .................... (1,835,096)
--------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ........................ 682,805
Net change in unrealized appreciation ... 9,453,812
--------------
NET GAIN ............................... 10,136,617
--------------
NET INCREASE ........................... $ 8,301,521
==============
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six For the
months ended year ended
August 31, 1996 February 29, 1996
--------------- -----------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss ............................................................. $ (1,835,096) $ (1,802,446)
Net realized gain ............................................................... 682,805 7,848,331
Net change in unrealized appreciation ........................................... 9,453,812 43,257,394
--------------- -----------------
Net increase ................................................................... 8,301,521 49,303,279
Net increase from transactions in shares of beneficial interest .................. 109,010,169 34,078,291
--------------- -----------------
Total increase ................................................................. 117,311,690 83,381,570
NET ASSETS:
Beginning of period .............................................................. 153,365,713 69,984,143
--------------- -----------------
END OF PERIOD (Including a net investment loss of $1,835,096 and $0,
respectively) .................................................................... $270,677,403 $153,365,713
=============== =================
</TABLE>
See Notes to Financial Statements
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS August 31, 1996 (unaudited)
- -----------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--TCW/DW Small Cap Growth Fund (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 capital appreciation. The Fund seeks to achieve
its objective by investing primarily in common stocks and other equity
securities of lesser known, smaller capitalization domestic and foreign
companies. The Fund was organized as a Massachusetts business trust on March
11, 1992 and commenced operations on August 2, 1993.
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 or American 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; (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 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 (4) 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. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily.
C. 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.
D. 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.
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS August 31, 1996 (unaudited) (continued)
- -----------------------------------------------------------------------------
E. Organizational Expenses--Dean Witter InterCapital Inc., an affiliate
of Dean Witter Services Co. Inc. (the "Manager"), paid the
organizational expenses of the Fund in the amount of $170,413 which have
been reimbursed for the full amount thereof. 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 0.60% 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.
3. INVESTMENT ADVISORY AGREEMENT--Pursuant to an Investment Advisory Agreement
with TCW Funds Management, Inc. (the "Adviser"), the Fund pays an advisory fee,
accrued daily and payable monthly, by applying the annual rate of 0.40% 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.
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 pursuant to which the Fund pays the Distributor compensation, accrued
daily and payable monthly, at an annual rate of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's shares since the inception of
the Fund (not including reinvestment of dividend or capital gain distributions)
less the average daily aggregate net asset value of the Fund's shares redeemed
since the Fund's inception upon which a contingent deferred sales charge has
been imposed or upon which such charge has been waived; or (b) the Fund's
average daily net assets. Amounts paid under the Plan are paid to the
Distributor to compensate it for the services provided and the expenses borne
by it and others in the distribution of the Fund's shares, including the
payment of commissions for sales of the Fund's shares and incentive
compensation to, and expenses of, the account executives of Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Manager and Distributor, and other
employees or selected broker-dealers who engage in or support distribution of
the Fund's 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 the Fund's shares to other than current
shareholders and preparation, printing and distribution of sales literature and
advertising materials. In addition, the Distributor may be compensated under
the Plan for its opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses incurred by the Distributor.
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS August 31, 1996 (unaudited) (continued)
- -----------------------------------------------------------------------------
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 the 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, included carrying charges, totaled
$10,763,230 at August 31, 1996.
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered, may be recovered through future distribution fees from
the Fund and contingent deferred sales charges from the Fund's shareholders.
The Distributor has informed the Fund that for the six months ended August
31, 1996, it received approximately $220,000 in contingent deferred sales
charges from certain redemptions of the Fund's shares. The Fund's shareholders
pay such charges which are not an expense of the Fund.
5. 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 August 31, 1996 aggregated $137,742,557
and $43,905,788, respectively.
Dean Witter Trust Company, an affiliate of the Manager and Distributor, is
the Fund's transfer agent. At August 31, 1996, the Fund had transfer agent fees
and expenses payable of approximately $3,000.
6. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
For the six For the
months ended year ended
August 31, 1996 February 29, 1996
----------------------------- -----------------------------
(unaudited)
Shares Amount Shares Amount
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold ........... 7,136,522 $134,730,423 4,601,760 $ 63,324,377
Repurchased ... (1,417,773) (25,720,254) (2,231,274) (29,246,086)
------------- -------------- ------------- --------------
Net increase .. 5,718,749 $109,010,169 2,370,486 $ 34,078,291
============= ============== ============= ==============
</TABLE>
7. FEDERAL INCOME TAX STATUS--At February 29, 1996, the Fund had a net capital
loss carryover of approximately $3,538,000 which will be available through
February 28, 2003 to offset future capital gains to the extent provided by
regulations.
As of February 29, 1996, the Fund had permanent book/tax differences
attributable to a net opera ting loss.
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
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 six For the For the August 2, 1993*
months ended year ended year ended through
August 31, 1996 February 29, 1996 February 28, 1995 February 28, 1994
--------------- ----------------- ----------------- -----------------
(unaudited)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $16.24 $ 9.90 $ 10.30 $10.00
--------------- ----------------- ----------------- -----------------
Net investment loss ..................... (0.12) (0.19) (0.18) (0.07)
Net realized and unrealized gain (loss) 1.74 6.53 (0.22) 0.37
--------------- ----------------- ----------------- -----------------
Total from investment operations ....... 1.62 6.34 (0.40) 0.30
--------------- ----------------- ----------------- -----------------
Net asset value, end of period .......... $17.86 $16.24 $ 9.90 $10.30
=============== ================= ================= =================
TOTAL INVESTMENT RETURN+ ................ 9.98 %(1) 64.04 % (3.88)% 3.00 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 2.08 %(2) 2.32 % 2.57 % 2.18 %(2)(3)
Net investment loss ..................... (1.60)%(2) (1.75)% (2.04)% (1.75)%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $270,677 $153,366 $69,984 $68,209
Portfolio turnover rate ................. 21 %(1) 52 % 116 % 69 %(1)
Average commission rate paid ............ $0.0573 -- -- --
</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.
(3) If the Fund had borne all its expenses that were assumed or reimbursed by
the Manager and Adviser, the above annualized expense and net investment
loss ratios would have been 2.78% and (2.35)%, respectively.
See Notes to Financial Statements
<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
Charles Larsen
Vice President
Douglas S. Foreman
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
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.
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly they
do not express an opinion thereon.
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
SMALL CAP
GROWTH FUND
[GRAPHIC OMITTED]
SEMI-ANNUAL REPORT
AUGUST 31, 1996
