<PAGE>
TCW/DW SMALL CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS February 28, 1997
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
Performance results for the twelve-month period ended February 28, 1997,
differed dramatically from the previous year as small-cap stocks underperformed
large-cap stocks and value stocks outperformed growth stocks.
Against this backdrop, TCW/DW Small Cap Growth Fund declined 3.14 percent for
the twelve-month period ended February 28, 1997. This compares to a return of
10.81 percent for the Russell 2000 Small Stock Index and a return of 6.62
percent for the Lipper Small-Cap Funds Index. Weakness in the small-cap growth
sector in general and disappointing performance in the technology area in
particular were primarily responsible for the decline. The underperformance of
the Fund in relation to the Russell 2000 is largely due to the fact that the
Index has a large proportion of slower growth "value" stocks that performed
considerably better than growth stocks. The Fund, on the other hand, only
invests in small companies that are expected to have above-average growth
rates.
The accompanying chart illustrates the growth of a hypothetical $10,000
investment in the Fund since inception (August 2, 1993) through the fiscal year
ended February 28, 1997, versus the performance of similar hypothetical
investments in the issues that comprise the unmanaged Russell 2000 Small Stock
Index and the Lipper Small-Cap Funds Index.
THE MARKETPLACE
The Federal Reserve Board's recent hike in the federal-funds rate highlights
the risk of rising interest rates. Because real rates are already high, the
Fund's investment adviser, TCW Funds Management, Inc. (TCW), does not believe
that the central bank's move is the first in a series of interest rate
increases that will end the bull market. Periods of Federal Reserve tightening
that have hurt the stock market have occurred when real interest rates were
negative, or in other words, when inflation was higher than the federal-funds
rate. This is not the case today. Furthermore, TCW believes that the dampening
effect of higher interest rates and the strong dollar will keep inflation under
control, thus extending the sustainability of the current economic expansion.
The duration of the current economic expansion, together with the lack of any
significant inflation pressures, differentiate it from other economic
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS February 28, 1997, continued
cycles. A recent Business Week cover article (March 31, 1997) points to
spending on information technology as what makes this economic cycle unusual.
Historically, the economy has been driven by spending on automobiles, housing
and new plant and equipment. Last year, however one-third of the growth in
gross domestic product (GDP) came from information technology industries,
spurred by everything from the Internet boom to faster, more powerful computer
hardware and software.
TCW/DW SMALL CAP GROWTH FUND
GROWTH OF $10,000
DATE TOTAL RUSSELL 2000 LIPPER
-----------------------------------------------------------------
August 2, 1993 $10,000 $10,000 $10,000
-----------------------------------------------------------------
February 28, 1994 $10,300 $11,196 $10,865
-----------------------------------------------------------------
February 28, 1995 $ 9,900 $10,818 $10,889
-----------------------------------------------------------------
February 29, 1996 $16,240 $13,701 $14,423
-----------------------------------------------------------------
February 28, 1997 $15,530(3) $15,182 $15,379
=================================================================
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR LIFE OF FUND
===============================================================
-3.14 (1) 13.51 (1)
---------------------------------------------------------------
-7.98 (2) 13.10 (2)
===============================================================
================================================================================
Fund Russell 2000 (4) LIPPER (5)
================================================================================
Past performance is not predictive of future returns.
- --------------
(1) Figure shown does not reflect the deduction of any sales charges.
(2) Figure shown assumes the deduction of the maximum applicable
contingent deferred sales charge (CDSC) (1 year-5%, since inception
2%). See the Fund's current prospectus for complete details on fees
and sales charges.
(3) Closing value after the deduction of a 2% CDSC, assuming a complete
redemption on February 28, 1997.
(4) The Russell 2000 Small Stock Index is a capitalization-weighted
price-only index of the 2000 smallest stocks represented in the
Russell 3000 Index. 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 Small-Cap Funds Index is an equally-weighted performance
index of the largest qualifying funds (based on net assets) in the
Lipper Small-Cap Funds objective. The Index, which is adjusted for
capital gains distributions and income dividends, is unmanaged and
should not be considered an investment. There are currently 30 funds
represented in this index.
Unlike other forms of capital outlays, spending on technology is actually
deflationary in that it is aimed at reducing costs and increasing efficiencies.
And, unlike expenditures on plant and equipment that consume raw materials and
labor resources, thus creating inflation pressures, spending on information
technology paves the way for lower inflation. This is why TCW believes that
forecasters who expect economic growth to lead to accelerating inflation will
continue to be proven wrong. Even Federal Reserve Chairman Alan Greenspan has
acknowledged that information technology has enhanced the stabilization of the
business cycle and caused the Consumer Price Index, a measure of the change in
the cost of living, to be overstated by as much as one percent.
In summary, TCW expects the investment environment to remain very positive.
Economic growth is healthy, inflation remains low, monetary and fiscal policy
are more responsible, the dollar is strong, demographic trends point to strong
demand for long-term financial assets and profit growth continues to exceed
expectations. This creates an excellent backdrop for the stock market.
THE PORTFOLIO
At the end of the fiscal year, the Fund had net assets in excess of $268
million. Although a number of portfolio changes were made over the last 12
months, there was little change in the weightings of broad industry sectors.
Industries that were increased included business services and electronics.
Groups where weightings were reduced included retail, computer software and
publishing. The portfolio's largest industry groups at fiscal year end were
computer software and services (22.3 percent), commercial services (9.2
percent), healthcare (4.2 percent) and electronics (3.7 percent).
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS February 28, 1997, continued
The Fund is invested in rapidly growing companies where earnings power and
growth rates are considered by TCW to have been underestimated by Wall Street
consensus. In order to minimize the impact of a slowing economy on the Fund,
TCW is emphasizing companies that focus on a specific market niche that is
insulated from macroeconomic trends. Some of the market niches that the Fund
emphasizes include healthcare companies (OccuSystems, Inc. and Oxford Health
Plans, Inc.), which benefit from the intense pressure to lower costs;
technology companies (Cambridge Technology Partners, Inc. and Remedy Corp.),
which are exploiting the trend to client/server computing; service companies
(Robert Half International, Inc. and Romac International, Inc.), which are
taking advantage of the move to outsourcing; software companies (Security
Dynamics Technologies, Inc. and Yahoo! Inc.), that benefit from the explosive
growth of the Internet, and numerous companies that are well positioned
demographically such as those whose growth is tied to our aging population
(Total Renal Care Holdings, Inc. and Vivus, Inc.).
OPPORTUNITIES IN SMALL-CAP STOCKS
Three years of underperformance by small-cap stocks has created valuation
levels that are very compelling. A recent report shows that while the projected
earnings growth of small caps over the next five years is considerably higher
than the growth for large caps, their price earnings ratio on 1997 earnings is
10 percent lower. In addition, the recent flight to safety that has favored
value stocks over growth, has caused the small-cap sector to be much more
attractively priced. In terms of both sales and cash flow relative to their
market price, small stocks are being priced as cheaply relative to the largest
100 stocks in the Standard & Poor's 500 Composite Stock Price Index, as they
were near the bottom of the bear market in the mid-1970s.
LOOKING AHEAD
TCW believes that small-cap growth stocks will continue to provide
above-average long-term returns. This outlook is enhanced by the fact that
valuations today 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 February 28, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.5%)
Advertising (1.5%)
142,425 Outdoor Systems, Inc.* ......................................... $ 4,183,734
--------------
Aerospace & Defense (0.7%)
78,100 BE Aerospace, Inc.* ............................................ 1,874,400
--------------
Auto Parts - Original
Equipment (0.4%)
47,200 Dura Automotive Systems, Inc.* ................................. 1,109,200
--------------
Automobiles (0.4%)
56,900 International Speedway Corp. (Class A)* ........................ 1,194,900
--------------
Biotechnology (1.5%)
29,500 Cytyc Corp.* ................................................... 796,500
34,100 Interneuron Pharmaceuticals, Inc.* ............................. 933,487
142,100 Neoprobe Corp.* ................................................ 2,415,700
--------------
4,145,687
--------------
Broadcast Media (3.4%)
80,800 Clear Channel Communications, Inc.* ............................ 3,868,300
11,300 Cox Radio, Inc. (Class A)* ..................................... 216,112
27,600 Lin Television Corp.* ........................................... 1,141,950
83,300 Metro Networks, Inc.* .......................................... 1,822,187
13,700 Premiere Radio Networks, Inc.* .................................. 215,775
19,800 Premiere Radio Networks, Inc. (Class A)* ....................... 294,525
80,500 Westwood One, Inc.* ............................................ 1,489,250
--------------
9,048,099
--------------
Business Services (0.8%)
60,000 Metzler Group, Inc. ............................................ 1,425,000
42,700 Wackenhut Corrections Corp. .................................... 736,575
--------------
2,161,575
--------------
Commercial Services (9.2%)
142,694 AccuStaff, Inc.* ............................................... 2,960,900
66,000 Cambridge Technology Partners, Inc.* ............................ 1,575,750
49,100 Caribiner International, Inc.* .................................. 2,332,250
62,700 Cohr, Inc.* .................................................... 1,598,850
72,000 Corrections Corp. of America* .................................. 2,052,000
55,600 International Network Services* ................................ 1,278,800
129,300 Pharmaceutical Product Development, Inc.* ...................... 3,006,225
84,900 PMT Services, Inc.* ............................................ 1,082,475
7,400 Radiant Systems, Inc.* ......................................... 68,450
95,100 Robert Half International, Inc.* ............................... 3,958,537
137,100 Romac International, Inc.* ..................................... $ 3,530,325
47,400 Snyder Communications, Inc.* ................................... 1,279,800
--------------
24,724,362
--------------
Communications - Equipment & Software (2.1%)
91,000 Ascend Communications, Inc.* ................................... 4,766,125
69,800 Premisys Communications, Inc.* ................................. 1,020,825
--------------
5,786,950
--------------
Computer Services (1.0%)
45,900 Ciber, Inc.* ................................................... 1,285,200
62,800 META Group, Inc. ............................................... 1,444,400
--------------
2,729,600
--------------
Computer Software (8.7%)
Business Objects S.A. (ADR)
134,800 (France)* ....................................................... 1,567,050
59,300 CBT Group PLC (ADR)(Ireland)* ................................... 3,202,200
120,600 Epic Design Technology, Inc.* ................................... 3,135,600
94,000 Medic Computer Systems, Inc.* ................................... 3,313,500
4,800 Metro Information Services, Inc.* ............................... 86,400
25,600 Peoplesoft, Inc.* ............................................... 1,017,600
110,923 Pure Atria Corp.* ............................................... 2,121,402
71,700 Remedy Corp.* ................................................... 2,751,487
113,800 Security Dynamics Technologies, Inc.* ........................... 3,129,500
115,900 SELECT Software Tools (ADR)(United Kingdom)* .................... 1,622,600
52,600 Transaction Systems Architects, Inc. (Class A)* ................. 1,361,025
--------------
23,308,364
--------------
Computer Software & Services (11.2%)
59,900 ABR Information Services, Inc.* ................................ 1,392,675
35,200 Aspect Development, Inc.* ....................................... 844,800
78,100 Citrix Systems, Inc.* ........................................... 986,012
30,800 Clarify, Inc.* ................................................. 781,550
129,750 Computer Management Sciences, Inc.* ............................ 2,076,000
68,940 CSG Systems International, Inc.* ................................ 1,284,008
66,100 Dendrite International, Inc.* ................................... 611,425
20,200 First USA Paymentech, Inc.* .................................... 603,475
32,800 HNC Software, Inc.* ............................................ 815,900
112,000 HPR, Inc.* ..................................................... 1,512,000
1,500 I2 Technologies, Inc.* ......................................... 43,125
40,900 INSO Corp.* .................................................... 1,411,050
92,300 Legato Systems, Inc.* .......................................... 1,869,075
239,200 National TechTeam, Inc.* ....................................... 5,411,900
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS February 28, 1997, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
42,000 Objective Systems Integrators, Inc.* ........................... $ 514,500
42,000 Planning Sciences International PLC (ADR)(United Kingdom)* ...... 504,000
28,700 Sapient Corp.* .................................................. 1,097,775
113,200 Saville Systems Ireland PLC (ADR)(Ireland)* .................... 4,075,200
53,700 Segue Software, Inc.* .......................................... 583,988
15,400 Sykes Enterprises, Inc.* ........................................ 492,800
20,100 Transition Systems, Inc.* ....................................... 261,300
48,600 Verilink Corp.* ................................................. 777,600
60,600 Viasoft, Inc.* .................................................. 2,181,600
--------------
30,131,758
--------------
Computers (1.4%)
134,100 Lumisys, Inc.* .................................................. 1,106,325
67,200 Network Appliance, Inc.* ....................................... 2,637,600
--------------
3,743,925
--------------
Electrical Equipment (1.2%)
35,450 Baldor Electric Co. ............................................ 877,388
100,700 Sheldahl, Inc.* ................................................. 2,253,163
--------------
3,130,551
--------------
Electronics (3.7%)
127,400 Computer Products, Inc.* ........................................ 2,181,725
100,000 Gemstar International Group Ltd.* ............................... 1,550,000
62,500 Lernout & Hauspie Speech Products NV (Belgium)* ................. 1,304,688
54,400 Nichols Research Corp.* ......................................... 1,332,800
101,800 Red Brick Systems, Inc.* ....................................... 1,985,100
59,500 SRS Labs, Inc.* ................................................ 490,875
58,800 Ultrak, Inc.* .................................................. 1,058,400
--------------
9,903,588
--------------
Electronics - Semiconductors/
Components (1.4%)
77,400 Maxim Integrated Products, Inc.* ................................ 3,831,300
--------------
Entertainment (1.3%)
39,600 Penske Motorsports, Inc.* ...................................... 1,084,050
90,000 Regal Cinemas, Inc.* ............................................ 2,362,500
--------------
3,446,550
--------------
Entertainment & Leisure Time (0.7%)
103,800 The North Face, Inc.* .......................................... 1,803,525
--------------
Entertainment/Gaming (1.4%)
132,000 Family Golf Centers, Inc.* ..................................... 3,630,000
--------------
Environmental Control (0.9%)
60,600 Culligan Water Technologies, Inc.* .............................. $ 2,363,400
4,735 Omega Environmental, Inc.* ...................................... 4,735
--------------
2,368,135
--------------
Financial Services (2.1%)
117,400 Envoy Corp.* .................................................... 2,788,250
117,400 Imperial Credit Industries, Inc.* ............................... 2,817,600
--------------
5,605,850
--------------
Health Equipment & Services (0.5%)
44,500 IDX Systems Corp.* .............................................. 1,357,250
--------------
Healthcare (1.6%)
107,000 OccuSystems, Inc.* .............................................. 2,501,125
30,100 Oxford Health Plans, Inc.* ...................................... 1,670,550
--------------
4,171,675
--------------
Healthcare - Miscellaneous (0.3%)
43,100 Superior Consultant Holdings Corp.* ............................. 862,000
--------------
Healthcare Products & Services (2.3%)
AmeriSource Health Corp.
31,800 (Class A)* ...................................................... 1,601,925
200,100 Orthodontic Centers of America, Inc.* ........................... 2,951,475
46,400 Pediatrix Medical Group, Inc.* .................................. 1,740,000
--------------
6,293,400
--------------
Hospital Management & Health
Maintenance Organizations (3.3%)
42,200 Express Scripts, Inc. (Class A)* ................................ 1,434,800
110,100 Medcath, Inc.* .................................................. 1,596,450
76,425 PhyCor, Inc.* ................................................... 2,302,303
99,200 Total Renal Care Holdings, Inc.* ................................ 3,459,600
--------------
8,793,153
--------------
Hotels (1.2%)
113,000 Interstate Hotels Co.* .......................................... 3,333,500
--------------
Insurance (1.1%)
46,200 Capmac Holdings, Inc. .......................................... 1,513,050
43,200 Gallagher (Arthur J.) & Co. .................................... 1,328,400
--------------
2,841,450
--------------
Internet (0.3%)
24,200 Yahoo! Inc.* .................................................... 732,050
--------------
Investment Companies (0.3%)
22,000 Sirrom Capital Corp. ........................................... 891,000
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS February 28, 1997, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
Life Insurance (1.2%)
65,200 CRA Managed Care, Inc.* ......................................... $2,591,700
40,100 First Commonwealth, Inc.* ....................................... 601,500
--------------
3,193,200
--------------
Machinery - Diversified (0.0%)
2,100 Roper Industries, Inc. ......................................... 84,525
--------------
Manufacturing (0.5%)
62,600 Memtec Ltd. (ADR)(Australia) ................................... 1,228,525
--------------
Media Group (0.3%)
Heftel Broadcasting Corp.
20,900 (Class A)* ..................................................... 841,225
--------------
Medical Equipment (0.3%)
33,300 Thermo Cardiosystems, Inc.* ..................................... 932,400
--------------
Medical Products & Supplies (3.3%)
121,800 Capstone Pharmacy Services, Inc.* ............................... 1,431,150
170,100 IRIDEX Corp.* ................................................... 807,975
60,000 Omnicare, Inc. ................................................. 1,590,000
203,200 Safeskin Corp.* ................................................. 3,733,800
53,200 Sola International, Inc.* ...................................... 1,383,200
--------------
8,946,125
--------------
Medical Services (1.0%)
90,800 Gulf South Medical Supply, Inc.* ................................ 1,918,150
53,900 NeoPath, Inc.* .................................................. 848,925
--------------
2,767,075
--------------
Office Equipment & Supplies (0.4%)
47,600 Viking Office Products, Inc.* ................................... 1,112,650
--------------
Oil & Gas Products (0.3%)
58,900 Daniel Industries, Inc. ........................................ 721,525
--------------
Oil Equipment & Services (1.3%)
76,000 Newpark Resources, Inc.* ........................................ 3,458,000
--------------
Pharmaceuticals (2.8%)
62,000 Dura-Pharmaceuticals, Inc.* ..................................... 2,069,250
99,000 Neose Technologies, Inc.* ....................................... 1,683,000
68,400 Vivus, Inc.* .................................................... 3,762,000
--------------
7,514,250
--------------
Publishing (2.0%)
84,100 Applied Graphics Technologies, Inc.* ............................ 2,218,138
120,000 Gartner Group, Inc. (Class A)* .................................. 3,180,000
--------------
5,398,138
--------------
Real Estate Investment Trust (0.8%)
46,800 Redwood Trust, Inc. ............................................ $2,176,200
--------------
Restaurants (1.6%)
86,800 Boston Chicken Inc.* ............................................ 2,842,700
51,500 Einstein/Noah Bagel Corp.* ...................................... 1,339,000
--------------
4,181,700
--------------
Retail (1.0%)
67,400 Stein Mart, Inc.* ............................................... 1,583,900
32,800 Tiffany & Co. .................................................. 1,139,800
--------------
2,723,700
--------------
Retail - Department Stores (0.6%)
43,100 Dollar Tree Stores, Inc.* ....................................... 1,670,125
--------------
Retail - Drug Stores (0.7%)
58,000 Smith's Food & Drug Centers, Inc. ............................... 1,906,750
--------------
Retail - Specialty (3.4%)
75,200 Bed Bath & Beyond, Inc.* ........................................ 1,955,200
243,795 Corporate Express, Inc.* ........................................ 4,510,208
102,400 Marks Bros. Jewelers, Inc.* ..................................... 921,600
25,563 Mossimo, Inc.* .................................................. 230,067
78,400 PetSmart, Inc.* ................................................. 1,509,200
--------------
9,126,275
--------------
Retail - Specialty Apparel (2.4%)
151,275 Just For Feet, Inc.* ............................................ 3,271,322
27,400 K & G Men's Center, Inc.* ....................................... 784,325
119,400 Kenneth Cole Productions, Inc. (Class A)* ....................... 2,343,225
--------------
6,398,872
--------------
Semiconductors (0.9%)
37,400 Aspen Technology, Inc.* ......................................... 2,304,775
--------------
Telecommunication Equipment (1.0%)
4,300 CIENA Corp.* .................................................... 168,775
11,700 Digital Lightwave, Inc.* ........................................ 93,600
83,800 Natural Microsystems Corp.* ..................................... 2,388,300
4,600 Yurie Systems, Inc.* ............................................ 58,650
--------------
2,709,325
--------------
Telecommunications (2.9%)
118,500 LCI International, Inc.* ........................................ 2,251,500
49,800 McLeod, Inc. (Class A)* ......................................... 871,500
90,000 Omnipoint Corp.* ................................................ 1,518,750
78,900 Telco Communications Group, Inc.* ............................... 1,420,200
132,200 Winstar Communications, Inc.* ................................... 1,751,650
--------------
7,813,600
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS February 28, 1997, continued
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
Transportation (1.5%)
14,500 Eagle USA Airfreight, Inc.* ..................................... $ 478,500
278,250 Miller Industries, Inc.* ........................................ 3,547,688
--------------
4,026,188
--------------
Transportation - Shipping (0.3%)
38,600 Atlas Air, Inc.* ................................................ 772,000
--------------
Wholesale Distributor (0.1%)
23,800 NuCo2 Inc.* ..................................................... 273,700
--------------
TOTAL COMMON STOCKS
(Identified Cost $221,428,402) .................................. 259,418,379
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.7%)
COMMERCIAL PAPER (a) (1.1%)
Finance - Corporate
$2,935 Ciesco, L.P. 5.25% due 03/11/97
(Amortized Cost $2,930,720) .......... 2,930,720
-------------
6,976 REPURCHASE AGREEMENT (2.6%)
The Bank of New York 5.25%
due 03/03/97 (dated 02/28/97;
proceeds $6,978,649;
collateralized by $1,401,241
Federal National Mortgage
Association 6.20% due 07/10/03
valued at $1,358,703 and
$5,401,728 U.S. Treasury Note
7.50% due 11/15/01 valued at
$5,756,400)(Identified Cost
$6,975,597) ......................... 6,975,597
-------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $9,906,317) .... $ 9,906,317
-------------
TOTAL INVESTMENTS
(Identified Cost $231,334,719)(b) . 100.2% 269,324,696
LIABILITIES IN EXCESS OF OTHER
ASSETS ............................ (0.2) (541,684)
------ ------------
NET ASSETS ........................ 100.0% $268,783,012
====== ============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was 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 is
$66,273,450 and the aggregate gross unrealized depreciation is
$28,283,473, resulting in net unrealized appreciation of $37,989,977.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $231,334,719) ............ $269,324,696
Receivable for:
Shares of beneficial interest sold ....... 835,413
Investments sold .......................... 260,083
Dividends ................................. 4,523
Interest .................................. 1,017
Deferred organizational expenses ........... 51,597
Prepaid expenses ........................... 18,999
--------------
TOTAL ASSETS ............................. 270,496,328
--------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased 715,791
Investments purchased ..................... 432,875
Plan of distribution fee .................. 223,456
Management fee ............................ 136,377
Investment advisory fee ................... 90,918
Accrued expenses ........................... 113,899
--------------
TOTAL LIABILITIES ........................ 1,713,316
--------------
NET ASSETS:
Paid-in-capital ............................ 242,517,068
Net unrealized appreciation ................ 37,989,977
Accumulated net realized loss .............. (11,724,033)
--------------
NET ASSETS ............................... $268,783,012
==============
NET ASSET VALUE PER SHARE,
17,087,044 shares outstanding (unlimited
shares authorized of $.01 par value) ..... $ 15.73
==============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest .................................. $ 991,688
Dividends (net of $760 foreign withholding
tax) ..................................... 176,901
--------------
TOTAL INCOME ............................ 1,168,589
--------------
EXPENSES
Plan of distribution fee .................. 2,299,601
Management fee ............................ 1,565,847
Investment advisory fee ................... 1,043,898
Transfer agent fees and expenses .......... 369,374
Registration fees ......................... 93,628
Professional fees ......................... 54,026
Shareholder reports and notices ........... 47,742
Custodian fees ............................ 39,924
Organizational expenses ................... 36,288
Trustees' fees and expenses ............... 32,721
Other ..................................... 15,202
--------------
TOTAL EXPENSES .......................... 5,598,251
--------------
NET INVESTMENT LOSS ..................... (4,429,662)
--------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss ......................... (8,185,871)
Net change in unrealized appreciation .... (16,577,754)
--------------
NET LOSS ................................ (24,763,625)
--------------
NET DECREASE .............................. $(29,193,287)
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (4,429,662) $ (1,802,446)
Net realized gain (loss) ............................. (8,185,871) 7,848,331
Net change in unrealized appreciation ................ (16,577,754) 43,257,394
------------- -------------
NET INCREASE (DECREASE) ............................ (29,193,287) 49,303,279
Net increase from transactions in shares of
beneficial interest ................................. 144,610,586 34,078,291
------------- -------------
NET INCREASE ....................................... 115,417,299 83,381,570
NET ASSETS:
Beginning of period .................................. 153,365,713 69,984,143
------------- -------------
END OF PERIOD ...................................... $268,783,012 $153,365,713
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1997
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 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 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.
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1997, continued
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.
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 Investment 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, 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.
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1997, continued
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.
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.
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, including carrying charges, totaled
$13,100,382 at February 28, 1997.
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1997, continued
The Distributor has informed the Fund that for the year ended February 28,
1997, it received approximately $649,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended February 28, 1997
aggregated $239,064,555 and $101,638,001, respectively.
Dean Witter Trust Company, an affiliate of the Manager and Distributor, is the
Fund's transfer agent. At February 28, 1997, the Fund had transfer agent fees
and expenses payable of approximately $30,000.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold 11,470,998 $212,425,149 4,601,760 $ 63,324,377
Repurchased (3,824,845) (67,814,563) (2,231,274) (29,246,086)
-------------- -------------- ------------- --------------
Net increase 7,646,153 $144,610,586 2,370,486 $ 34,078,291
============== ============== ============= ==============
</TABLE>
7. FEDERAL INCOME TAX STATUS
At February 28, 1997, the Fund had a capital loss carryover of approximately
$8,948,000 of which $3,538,000 will be available through February 28, 2003 and
$5,410,000 will be available through February 28, 2005 to offset future capital
gains to the extent provided by regulations.
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $2,772,000 during fiscal 1997.
As of February 28, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses and a permanent book/tax difference
attributable to a net operating loss. To reflect the reclassification arising
from the permanent difference, paid-in-capital was charged and net investment
loss was credited $4,429,662.
<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 YEAR ENDED FEBRUARY 28, AUGUST 2, 1993*
--------------------------------- THROUGH
1997 1996** 1995 FEBRUARY 28, 1994
- ---------------------------------------------------------------------------------------------
<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..................... (0.26) (0.19) (0.18) (0.07)
Net realized and unrealized gain
(loss)................................. (0.25) 6.53 (0.22) 0.37
---------- ---------- --------- -----------------
Total from investment operations ....... (0.51) 6.34 (0.40) 0.30
---------- ---------- --------- -----------------
Net asset value, end of period.......... $15.73 $16.24 $ 9.90 $10.30
========== ========== ========= =================
TOTAL INVESTMENT RETURN+................ (3.14)% 64.04% (3.88)% 3.00%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.15% 2.32% 2.57% 2.18%(2)(3)
Net investment loss..................... (1.70)% (1.75)% (2.04)% (1.75)%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $268,783 $153,366 $69,984 $68,209
Portfolio turnover rate................. 42% 52% 116% 69%(1)
Average commission rate paid............ $0.0580 -- -- --
</TABLE>
- --------------
* Commencement of operations.
** Year ended February 29.
+ 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 waived by
the Manager and Adviser, the annualized expense and net investment loss
ratios would have been 2.78% and (2.35)%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW SMALL CAP GROWTH FUND
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 Small Cap Growth Fund (the
"Fund") at February 28, 1997, 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 three years in the
period then ended and for the period August 2, 1993 (commencement of
operations) through February 28, 1994, 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 February 28, 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
April 11, 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
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 Americas
New York, New York 10036
MANAGER
Dean Witter Services 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
SMALL CAP
GROWTH FUND
ANNUAL REPORT
FEBRUARY 28, 1997
