<PAGE>
TCW/DW SMALL CAP GROWTH FUND Two World Trade Center,
LETTER TO THE SHAREHOLDERS February 28, 1998 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual letter to shareholders of TCW/DW Small
Cap Growth Fund for the fiscal year ended February 28, 1998.
During this fiscal year the Fund's Class B shares posted a total return
of 34.01 percent, compared to returns of 28.27 percent and 26.45 percent
for the Russell 2000 Index and the Lipper Small-Cap Growth Funds
Index, respectively. From their inception on July 28, 1997, through February
28, 1998, the Fund's Class A, C and D shares produced returns of 16.89
percent, 16.39 percent and 17.05 percent, respectively. The performance of
the Fund's four share classes varies because of differences in sales charges
and expenses. The accompanying chart illustrates the growth of a hypothetical
$10,000 investment in the Fund's Class B shares from inception on August 2,
1993, versus the performance of a similar hypothetical investment in the
issues that comprise the Russell 2000 Index and Lipper Small-Cap Growth Funds
Index.
THE MARKETPLACE
TCW Funds Management, Inc. (TCW), the Fund's adviser, believes that the
severity of the Asian currency crisis has mitigated investor concern that the
Federal Reserve Board will tighten monetary policy in the near term.
Inflation continues to be low and disinflation is spreading to the service
sector. The recent Teamster settlement, the major labor agreement to be
negotiated in 1998, came in at just 2 1/2 percent for wages and benefits over
a five-year period. Fortunately, the effects of lower interest rates and
falling oil prices have offset the impact of the Asian crisis on the U.S.
economy. Consumer confidence is high and homebuilding is at record levels,
due to lower interest rates and favorable weather. Refinancing activity and
auto rebates are stimulating consumer spending. While the manufacturing
sector is beginning to feel some of the effects of the Asian turmoil,
consumer markets, along with the service sector and many areas of technology,
are stronger.
According to TCW, 1998 should offer several challenges that many younger
investors have not faced before, including the possibility of
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS February 28, 1998, continued
earnings disappointments. With slower revenue growth due to more moderate
economic activity and the absence of price flexibility, rising wage costs
could squeeze margins. We will probably have a glimpse of this risk when
first-quarter earnings are reported and managements outline their future
prospects and indicate whether they see an Asian-led drag on their
businesses. The key for investors is whether price-earnings ratios, driven
higher by falling inflation and lower interest rates, can increase
sufficiently to offset what will undoubtedly be slower growth in corporate
profits. Despite these concerns, TCW believes that the investment environment
will 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 scenario provides an
excellent backdrop for the stock market.
OPPORTUNITIES IN SMALL-CAP STOCKS
Within the small-company sector, TCW believes that small-cap growth stocks
will ultimately reflect their premium growth rates. The fact that investors
remain cautious about the prospects for small-cap stocks bodes well for this
sector of the market. Three years of underperformance have created valuation
levels for many small caps that TCW believes to be very compelling. In terms
of earnings, sales and book value, small-cap growth stocks are as attractive
relative to the S&P 500 as they were at the market bottoms in 1990 and 1987.
It is highly unusual to find both relative earnings strength and depressed
relative valuations. These ingredients should eventually cause investors to
move out on the risk spectrum in order to participate in the faster growth
potential of small caps.
THE PORTFOLIO
At the end of the fiscal year, the Fund had net assets exceeding $341
million. The biggest change in the portfolio during the fiscal year was its
increase in technology stocks, much of which came from appreciation of the
Fund's larger holdings. More specifically, the biggest increase in the Fund's
industry weightings was in the computer software and services sector, which
accounted for 29 percent of the portfolio at fiscal year-end. On February 28,
1998, the Fund also maintained substantial weightings in the business
services (18.6 percent) and healthcare (15.8 percent) sectors.
The Fund is invested in rapidly growing companies where earnings power and
growth rates are considered underestimated by Wall Street's consensus.
Seeking order to minimize the impact of a slowing economy on the Fund, TCW is
now emphasizing companies that focus on a specific market niche that is
insulated from macroeconomic trends. Some such niches that the Fund is
currently emphasizing are healthcare companies (Concentra Managed Care, Inc.,
Envoy Corp.), which should benefit from the intense
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS February 28, 1998, continued
pressure to lower costs; technology companies (Cambridge Technology Partners,
Inc., MAXIMUS, Inc.), which are exploiting the trend to outsourcing
information technology services; service companies
(Robert Half Intl., Inc., Romac Intl., Inc.), which are taking advantage of
the move toward outsourcing employment needs; software companies (VeriSign,
Yahoo! Inc.), which continue to benefit from the explosive growth of the
Internet, and numerous companies that are helping to solve the year-2000
problem (Computer Horizons Corp., Ciber Inc.).
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 investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
FUND PERFORMANCE February 28, 1998
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[LINE CHART]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS*
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES**
- --------------------------------------------------
PERIOD ENDED 2/28/98
- ------------------------
<S> <C> <C>
1 year 34.01%(1) 29.01%(2)
From Inception (8/02/93) 17.70%(1) 17.46%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- --------------------------------------------------
PERIOD ENDED 2/28/98
- ------------------------
<S> <C> <C>
FROM INCEPTION (7/28/97) 16.39%(1) 15.39%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES+
- --------------------------------------------------
PERIOD ENDED 2/28/98
- ------------------------
<S> <C> <C>
From Inception (7/28/97) 16.89%(1) 10.75%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES++
- --------------------------------------------------
PERIOD ENDED 2/28/98
- ------------------------
<S> <C>
From Inception (7/28/97) 17.05%(1)
</TABLE>
- ------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on February 28, 1998.
(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.
* For periods of less than one year, the fund quotes its total return on a
non-annualized basis.
** The maximum contingent deferred sales charge (CDSC) for Class B shares
is 5.00%. The CDSC declines to 0% after six years.
+ The maximum front-end sales charge for Class A shares is 5.25%.
++ The maximum contingent deferred sales charge for Class C shares is 1%
for shares redeemed within one year of purchase.
++ Class D shares have no sales charge.
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS February 28, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (101.5%)
Advertising (2.5%)
274,405 Outdoor Systems, Inc.* .......................................... $ 8,180,714
21,800 TMP Worldwide, Inc.* ............................................ 517,750
------------
8,698,464
------------
Aerospace (0.5%)
146,500 United Industrial Corp. ........................................ 1,611,500
------------
Auto Parts - Original
Equipment (0.4%)
27,300 Tower Automotive, Inc.* ......................................... 1,240,444
------------
Banks (0.0%)
3,600 Bank of Granite Corp. .......................................... 110,700
------------
Biotechnology (1.8%)
83,800 BioReliance Corp.* .............................................. 1,948,350
131,900 Cell Therapeutics, Inc.* ........................................ 1,945,525
56,100 Sepracor, Inc.* ................................................. 2,258,025
------------
6,151,900
------------
Broadcast Media (7.1%)
96,100 Clear Channel Communications, Inc.* ............................. 8,709,062
173,000 Gemstar International Group Ltd.* ............................... 5,319,750
Heftel Broadcasting Corp.
41,800 (Class A)* ...................................................... 1,969,825
83,300 Metro Networks, Inc.* ........................................... 3,071,687
142,400 VDI Media* ...................................................... 2,136,000
97,700 Westwood One, Inc.* ............................................. 3,028,700
------------
24,235,024
------------
Commercial Services (10.1%)
1,700 Administaff, Inc. .............................................. 69,912
39,100 Cambridge Technology Partners, Inc.* ............................ 1,779,050
46,400 Caribiner International, Inc.* .................................. 1,560,200
54,900 Ciber, Inc.* ................................................... 3,664,575
45,600 Compass International Services* ................................. 478,800
9,600 Corrections Corp. of America* ................................... 367,200
77,000 MemberWorks, Inc.* .............................................. 2,310,000
78,700 META Group, Inc. ............................................... 2,341,325
7,400 Radiant Systems, Inc.* ......................................... 138,750
18,900 Renaissance Worldwide, Inc. .................................... 1,122,187
102,150 Robert Half International, Inc.* ............................... 4,622,287
274,200 Romac International, Inc.* ..................................... 6,786,450
115,300 Snyder Communications, Inc.* ................................... 4,734,506
52,100 Superior Services, Inc.* ....................................... 1,374,137
80,100 The Vincam Group, Inc.* ......................................... 2,082,600
40,700 USWeb Corp. .................................................... $ 763,125
31,000 Youth Services International, Inc. .............................. 472,750
------------
34,667,854
------------
Computer Services (0.9%)
101,300 International Network Services* ................................. 2,823,737
4,200 Visual Networks, Inc. .......................................... 83,475
------------
2,907,212
------------
Computer Software (6.9%)
59,300 CBT Group PLC (ADR)(Ireland)* ................................... 5,433,362
41,300 Concord Communications, Inc.* ................................... 1,177,050
3,200 Micromuse, Inc. ................................................ 60,800
51,200 PeopleSoft, Inc.* ............................................... 2,284,800
95,300 QAD, Inc. ...................................................... 1,441,412
103,000 QuadraMed Corp.* ............................................... 3,270,250
127,400 Security Dynamics Technologies, Inc.* ........................... 4,522,700
235,700 TAVA Technologies, Inc. ........................................ 1,981,353
77,800 Transaction Systems Architects, Inc. (Class A)* ................. 3,355,125
------------
23,526,852
------------
Computer Software &
Services (21.2%)
52,300 Aspect Development, Inc.* ....................................... 2,484,250
111,300 Aspen Technology, Inc.* ......................................... 4,424,175
214,650 Citrix Systems, Inc.* ........................................... 9,028,716
46,700 Clarify, Inc.* .................................................. 700,500
115,450 Computer Horizons Corp.* ....................................... 6,003,400
95,100 Computer Learning Centers, Inc.* ................................ 3,500,869
94,950 Computer Management Sciences, Inc.* ............................. 2,474,634
100,940 CSG Systems International, Inc.* ................................ 3,898,807
208,000 Dendrite International, Inc.* ................................... 5,668,000
85,200 Documentum, Inc.* ............................................... 3,951,150
81,700 HNC Software, Inc.* ............................................. 2,920,775
113,300 Legato Systems, Inc.* ........................................... 5,551,700
222,800 National TechTeam, Inc.* ........................................ 2,297,625
226,400 Saville Systems Ireland PLC (ADR)(Ireland)* ..................... 10,527,600
97,200 Siebel Systems, Inc.* ........................................... 5,977,800
109,600 Viasoft, Inc.* .................................................. 2,959,200
------------
72,369,201
------------
Computers (3.4%)
150,100 MRV Communications, Inc.* ....................................... 3,489,825
134,400 Network Appliance, Inc.* ........................................ 3,897,600
227,100 Sigma Designs, Inc. ............................................ 709,687
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS February 28, 1998, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
54,000 VeriSign, Inc. ................................................. $ 1,545,750
86,700 Xylan Corp.* .................................................... 2,080,800
------------
11,723,662
------------
Electrical Equipment (0.5%)
100,700 Sheldahl, Inc.* ................................................. 1,674,137
------------
Electronics (1.7%)
65,100 Avid Technology, Inc.* .......................................... 2,250,019
149,100 Computer Products, Inc.* ........................................ 3,718,181
5,500 SRS Labs, Inc.* ................................................. 44,000
------------
6,012,200
------------
Electronics - Semiconductors/
Components (1.8%)
154,800 Maxim Integrated Products, Inc.* ................................ 6,250,050
------------
Financial Services (0.9%)
100,600 Imperial Credit Commercial Mortgage Investment Corp. ........... 1,534,150
66,200 Imperial Credit Industries, Inc.* ............................... 1,390,200
------------
2,924,350
------------
Health Equipment &
Services (0.4%)
36,300 IDX Systems Corp.* .............................................. 1,501,913
------------
Healthcare - HMOs (0.8%)
168,800 Coventry Corp.* ................................................. 2,732,450
------------
Healthcare Products &
Services (3.8%)
159,967 Concentra Managed Care, Inc.* ................................... 5,488,868
169,900 Ocular Sciences, Inc. ........................................... 3,801,513
200,100 Orthodontic Centers of America, Inc.* ........................... 3,864,431
------------
13,154,812
------------
Healthcare Services (2.6%)
143,600 Envoy Corp.* .................................................... 5,833,750
6,600 First Consulting Group, Inc. ................................... 122,925
33,400 Healthcare Recoveries, Inc.* ................................... 709,750
59,900 Superior Consultant Holdings Corp.* ............................. 2,208,813
------------
8,875,238
------------
Hospital Management (1.1%)
110,100 Medcath, Inc.* .................................................. 1,679,025
57,700 Curative Health Services, Inc. ................................. 2,127,688
------------
3,806,713
------------
Industrials (0.3%)
EduTrek International, Inc.
47,000 (Class A)* ..................................................... $ 1,034,000
------------
Internet (2.2%)
33,300 DoubleClick Inc. ................................................ 1,063,519
104,600 E*TRADE Group, Inc.* ............................................ 2,784,975
51,000 Yahoo!, Inc.* ................................................... 3,729,375
------------
7,577,869
------------
Laser Equipment (0.6%)
71,600 DBT Online, Inc.* ............................................... 2,049,550
------------
Medical Products &
Supplies (5.7%)
177,800 Hanger Orthopedic Group, Inc.* .................................. 2,400,300
170,100 IRIDEX Corp.* ................................................... 1,467,113
79,000 Molecular Dynamics, Inc.* ....................................... 962,813
173,200 PolyMedica Industries, Inc.* .................................... 2,100,050
203,200 Safeskin Corp.* ................................................. 12,471,400
------------
19,401,676
------------
Medical Services (1.4%)
17,400 IMPATH, Inc.* ................................................... 598,125
45,300 NeoPath, Inc.* .................................................. 588,900
112,967 Total Renal Care Holdings, Inc.* ................................ 3,636,125
------------
4,823,150
------------
Oil Equipment & Services (2.1%)
94,800 Eagle Geophysical, Inc. ........................................ 1,279,800
304,000 Newpark Resources, Inc.* ........................................ 5,852,000
------------
7,131,800
------------
Oil Services (1.3%)
101,600 Friede Goldman International, Inc.* ............................. 3,073,400
84,400 Key Energy Group, Inc.* ......................................... 1,492,825
------------
4,566,225
------------
Pharmaceuticals (0.9%)
179,200 Neose Technologies, Inc.* ....................................... 2,508,800
21,000 Pharmacyclics, Inc.* ............................................ 547,313
------------
3,056,113
------------
Publishing (0.9%)
49,400 Applied Graphics Technologies, Inc.* ............................ 2,914,600
------------
Real Estate (0.9%)
55,000 CB Commercial Real Estate Services Group, Inc. ................. 2,062,500
27,500 LaSalle Partners, Inc.* ......................................... 986,563
------------
3,049,063
------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS February 28, 1998, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Real Estate Investment Trust (0.1%)
9,400 CCA Prison Realty Trust ......................................... $ 413,600
------------
Recreation (1.3%)
153,350 Signature Resorts, Inc.* ........................................ 3,182,013
30,900 Silverleaf Resorts, Inc.* ...................................... 826,575
25,700 Trendwest Resorts, Inc.* ........................................ 520,425
------------
4,529,013
------------
Restaurants (0.2%)
46,500 IL Fornaio (America) Corp. ..................................... 633,563
------------
Retail (0.3%)
22,800 Tiffany & Co. .................................................. 1,071,600
------------
Retail - Department Stores (0.8%)
64,650 Dollar Tree Stores, Inc.* ....................................... 2,804,194
------------
Retail - General Merchandise (1.1%)
148,800 Cost Plus, Inc.* ................................................ 3,645,600
------------
Retail - Specialty (3.3%)
100,700 Bed Bath & Beyond, Inc.* ........................................ 4,348,981
450,100 Intelligent Electronics, Inc.* .................................. 3,010,044
108,100 Marks Bros. Jewelers, Inc.* ..................................... 1,891,750
29,000 Timberland Co. Class A* ......................................... 2,102,500
------------
11,353,275
------------
Retail - Specialty Apparel (2.4%)
151,275 Just For Feet, Inc.* ........................................... 2,562,220
204,400 The North Face, Inc.* .......................................... 5,621,000
------------
8,183,220
------------
Specialized Services (1.1%)
85,400 MAXIMUS, Inc.* ................................................. 2,092,300
69,300 Pegasus Systems, Inc.* ......................................... 1,524,600
------------
3,616,900
------------
Steel (0.4%)
87,500 NS Group, Inc. ................................................. 1,246,875
------------
Telecommunication Equipment (2.7%)
46,500 Genesys Telecommunications Laboratories, Inc.* .................. $ 1,360,125
100,800 GeoTel Communications Corp.* .................................... 2,293,200
79,300 Natural Microsystems Corp.* ..................................... 3,409,900
84,700 Premisys Communications, Inc.* .................................. 2,006,331
------------
9,069,556
------------
Telecommunications (0.3%)
48,224 Excel Communications, Inc. ..................................... 1,015,718
------------
Transportation (1.3%)
103,000 C.H. Robinson Worldwide, Inc. .................................. 2,317,500
20,300 Eagle USA Airfreight, Inc.* ..................................... 581,088
218,250 Miller Industries, Inc.* ........................................ 1,582,313
------------
4,480,901
------------
Wholesale & International
Trade (0.2%)
15,700 Daisytek International Corp.* ................................... 737,900
------------
Wholesale Distributor (1.3%)
215,400 Brightpoint, Inc.* .............................................. 4,402,238
------------
TOTAL INVESTMENTS
(Identified Cost $221,081,786)(a) ................................... 101.5% 346,982,875
LIABILITIES IN EXCESS OF
OTHER ASSETS ........................................................ (1.5) (5,107,199)
----- ------------
NET ASSETS .......................................................... 100.0% $341,875,676
===== ============
</TABLE>
- --------------
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$134,313,340 and the aggregate gross unrealized depreciation is
$8,412,251, resulting in net unrealized appreciation of $125,901,089.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $221,081,786) .......................... $346,982,875
Receivable for:
Investments sold ....................................... 4,156,733
Shares of beneficial interest sold ..................... 192,681
Deferred organizational expenses ......................... 15,378
Prepaid expenses and other assets ........................ 56,762
------------
TOTAL ASSETS ........................................... 351,404,429
------------
LIABILITIES:
Payable for:
Investments purchased .................................. 2,625,803
Shares of beneficial interest repurchased .............. 1,427,537
Plan of distribution fee ............................... 239,545
Management fee ......................................... 163,330
Investment advisory fee ................................ 108,886
Payable to bank .......................................... 4,889,659
Accrued expenses and other payables ...................... 73,993
------------
TOTAL LIABILITIES ...................................... 9,528,753
------------
NET ASSETS ............................................. $341,875,676
============
COMPOSITION OF NET ASSETS:
Paid-in-capital .......................................... $219,566,008
Net unrealized appreciation .............................. 125,901,089
Accumulated net realized loss ............................ (3,591,421)
------------
NET ASSETS ............................................. $341,875,676
============
CLASS A SHARES:
Net Assets ............................................... $ 276,305
Shares Outstanding (unlimited authorized, $.01 par value) 13,045
NET ASSET VALUE PER SHARE .............................. $21.18
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ...... $22.35
============
CLASS B SHARES:
Net Assets ............................................... $340,665,135
Shares Outstanding (unlimited authorized, $.01 par value) 16,159,446
NET ASSET VALUE PER SHARE .............................. $21.08
============
CLASS C SHARES:
Net Assets ............................................... $922,507
Shares Outstanding (unlimited authorized, $.01 par value) 43,753
NET ASSET VALUE PER SHARE .............................. $21.08
============
CLASS D SHARES:
Net Assets ............................................... $11,729
Shares Outstanding (unlimited authorized, $.01 par value) 553
NET ASSET VALUE PER SHARE .............................. $21.21
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended February 28, 1998*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends ................................. $ 202,416
Interest .................................. 408,214
-----------
TOTAL INCOME ............................ 610,630
-----------
EXPENSES
Plan of distribution fee (Class A shares) 260
Plan of distribution fee (Class B shares) 2,989,560
Plan of distribution fee (Class C shares) 3,535
Management fee ............................ 1,831,059
Investment advisory fee ................... 1,220,706
Transfer agent fees and expenses .......... 491,827
Registration fees ......................... 78,815
Shareholder reports and notices ........... 61,829
Professional fees ......................... 61,512
Custodian fees ............................ 38,172
Trustees' fees and expenses ............... 37,990
Organizational expenses ................... 36,219
Other ..................................... 19,019
-----------
TOTAL EXPENSES .......................... 6,870,503
-----------
NET INVESTMENT LOSS ..................... (6,259,873)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ......................... 8,132,612
Net change in unrealized appreciation .... 87,911,112
-----------
NET GAIN ................................ 96,043,724
-----------
NET INCREASE .............................. $89,783,851
===========
</TABLE>
- --------------
* Class A, Class C and Class D shares were issued July 28, 1997.
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, 1998* FEBRUARY 28, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ................................... $ (6,259,873) $ (4,429,662)
Net realized gain (loss) .............................. 8,132,612 (8,185,871)
Net change in unrealized appreciation ................. 87,911,112 (16,577,754)
------------ ------------
NET INCREASE (DECREASE) ............................. 89,783,851 (29,193,287)
Net increase (decrease) from transactions in shares of
beneficial interest .................................. (16,691,187) 144,610,586
------------ ------------
NET INCREASE ........................................ 73,092,664 115,417,299
NET ASSETS:
Beginning of period ................................... 268,783,012 153,365,713
------------ ------------
END OF PERIOD ....................................... $341,875,676 $268,783,012
============ ============
</TABLE>
- --------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998
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. On July 28, 1997, the Fund commenced offering three
additional classes of shares, with the then current shares designated as
Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) An equity security listed or traded on the
New York 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
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998, continued
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. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- 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.
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998, continued
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.
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. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily
and paid monthly at the following annual rates: (i) Class A -up to 0.25% of
the average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Class B 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
Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived: or (b) the average daily
net assets of Class B; and (iii) Class C -up to 1.0% of the average daily
net assets of Class C. In the case of Class A shares, amounts paid under the
Plan are paid to the Distributor for services provided. In the case of Class
B and Class C shares, amounts paid under the Plan are paid to the Distributor
for services provided and the expenses borne by it and others in the
distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Manager and Distributor, and others who engage in or support
distribution of the shares or who service shareholder accounts, including
overhead and telephone expenses; printing and distribution of prospectuses
and reports used in
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998, continued
connection with the offering of these shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate DWR and
other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $13,685,501 at February
28, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended February 28, 1998, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.23% and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended February 28,
1998, it received contingent deferred sales charges from certain redemptions
of the Fund's Class B shares and Class C shares of $1,164,710 and $685,
respectively and received $13,125 in front-end sales charges from sales of
the Fund's Class A shares. The respective 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 year ended February 28, 1998
aggregated $182,612,109 and $189,116,019, respectively.
For the period May 31, 1997 through February 28, 1998, the Fund incurred
brokerage commissions of $2,473 with Morgan Stanley & Co. Inc., an affiliate
of the Manager since May 31, 1997, for portfolio transactions executed on
behalf of the Fund.
Dean Witter Trust FSB, an affiliate of the Manager and Distributor, is the
Fund's transfer agent. At February 28, 1998, the Fund had transfer agent fees
and expenses payable of approximately $4,000.
<PAGE>
TCW/DW SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS February 28, 1998, continued
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, 1998 FEBRUARY 28, 1997
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold 13,711 $ 261,176 -- --
Redeemed (666) (13,032) -- --
---------- ------------ ---------- ------------
Net increase - Class A 13,045 248,144 -- --
---------- ------------ ---------- ------------
CLASS B SHARES
Sold 5,153,345 91,806,062 11,470,998 $212,425,149
Redeemed (6,080,943) (109,578,810) (3,824,845) (67,814,563)
---------- ------------ ---------- ------------
Net increase (decrease) - Class B (927,598) (17,772,748) 7,646,153 144,610,586
---------- ------------ ---------- ------------
CLASS C SHARES*
Sold 49,455 935,270 -- --
Redeemed (5,702) (111,875) -- --
---------- ------------ ---------- ------------
Net increase - Class C 43,753 823,395 -- --
---------- ------------ ---------- ------------
CLASS D SHARES*
Sold 553 10,022 -- --
---------- ------------ ---------- ------------
Net increase (decrease) in Fund (870,247) $(16,691,187) 7,646,153 $144,610,586
========== ============ ========== ============
</TABLE>
- --------------
* For the period July 28, 1997 (issue date) through February 28, 1998.
7. FEDERAL INCOME TAX STATUS
During the year ended February 28, 1998, the Fund utilized approximately
$5,578,000 of its net capital loss carryover. At February 28, 1998, the Fund
had a net capital loss carryover of approximately $3,370,000 which will be
available through February 28, 2005 to offset future capital gains to the
extent provided by regulations.
As of February 28, 1998, the Fund had temporary book/tax differences
primarily attributable to capital loss deferrals on wash sales and permanent
book/tax differences attributable to a net operating loss. To reflect the
reclassifications arising from the permanent differences, paid-in-capital was
charged and net investment loss was credited $6,259,873.
<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
1998***++ 1997 1996** 1995 FEBRUARY 28, 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $15.73 $16.24 $ 9.90 $10.30 $10.00
------ ------ ------ ------ ------
Net investment loss..................... (0.37) (0.26) (0.19) (0.18) (0.07)
Net realized and unrealized gain
(loss)................................. 5.72 (0.25) 6.53 (0.22) 0.37
------ ------ ------ ------ ------
Total from investment operations ....... 5.35 (0.51) 6.34 (0.40) 0.30
------ ------ ------ ------ ------
Net asset value, end of period.......... $21.08 $15.73 $16.24 $ 9.90 $10.30
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+................ 34.01% (3.14)% 64.04% (3.88)% 3.00%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.25% 2.15% 2.32% 2.57% 2.18%(2)(3)
Net investment loss..................... (2.05)% (1.70)% (1.75)% (2.04)% (1.75)%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $340,665 $268,783 $153,366 $69,984 $68,209
Portfolio turnover rate................. 61% 42% 52% 116% 69%(1)
Average commission rate paid............ $0.0576 $0.0580 -- -- --
</TABLE>
- --------------
* Commencement of operations.
** Year ended February 29.
*** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
1998++
- ------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $18.12
------
Net investment loss...................... (0.15)
Net realized and unrealized gain ....... 3.21
------
Total from investment operations ....... 3.06
------
Net asset value, end of period........... $21.18
======
TOTAL INVESTMENT RETURN+ ................ 16.89 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................. 1.52 %(2)
Net investment loss...................... (1.32)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $276
Portfolio turnover rate ................. 61 %(1)
Average commission rate paid............. $0.0576
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $18.12
------
Net investment loss...................... (0.24)
Net realized and unrealized gain ....... 3.20
------
Total from investment operations ........ 2.96
------
Net asset value, end of period........... $21.08
======
TOTAL INVESTMENT RETURN+ ................ 16.39 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 2.29 %(2)
Net investment loss ..................... (2.10)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $923
Portfolio turnover rate.................. 61 %(1)
Average commission rate paid............. $0.0576
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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 SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
1998++
- ------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $18.12
------
Net investment loss ..................... (0.12)
Net realized and unrealized gain ....... 3.21
------
Total from investment operations ........ 3.09
------
Net asset value, end of period .......... $21.21
======
TOTAL INVESTMENT RETURN+ ................ 17.05 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.27 %(2)
Net investment loss ..................... (1.10)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $12
Portfolio turnover rate ................. 61 %(1)
Average commission rate paid ............ $0.0576
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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 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, 1998, 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
periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at February 28, 1998 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 13, 1998
<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 P. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus
of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
TCW/DW
SMALL CAP
GROWTH FUND
[Graphic]
ANNUAL REPORT
FEBRUARY 28, 1998
